Forex Currency Trading Systems: Why Do They Lose Money?
We see new automatic forex trading systems just about every week now, it seems. They all produce amazing results in theory but when we try live testing the bottom line can be very different, as most of us know from bitter experience.
So why do the dreams crumble to ashes? Is it the responsibility of the user and the settings that they select? Were the results faked? Or is there some little known cosmic law that says that as soon as a forex system is automated, the forex market will turn around to prevent it from working?
I know that last one sounds crazy but but sometimes I have wondered and you too maybe.
But in reality I do not think it’s because of any of those reasons. Maybe I will be blasted for this but here’s what I think actually happens …
This is how a new forex robot is usually developed: traders take a system that has been working for them (or figure out a new one and backtest it), pay a software developer to automate it, and then to recover the expense of the programming and more, they sell it to traders like you and me.
The critical question comes in that first step. If the system has been working for the developer for a long time, great. But usually they move far too fast. They depend more or less on backtests. They know that there is always a market for new robots, so they can easily cover their investment cost on the automation, so there is in fact practically no risk in them taking on a programmer as soon as they dream up something that backtests pretty well. They do not necessarily wait for live test results.
So they go ahead and create a new automated forex trading system. Having done that, they need to sell it. They might do a little live testing, but it would be risky! What if it made a loss? They won’t want to lie about the results so maybe it would be better not to test it live, but just release it right away. People are credulous and many of them will buy on the basis of backtesting by themselves. Quick! the developer thinks, Let’s get it on the market now while it still seems that it works!
So what’s the problem with backtesting? Nothing, if you believe that its results in the future will be the same as its results in the past. But wait, isn’t that the first thing they tell you in the fine print on all investment documents? "Past results are not a guarantee of future performance …"
Take a simple example. You know that the odds of black winning in roulette are just under 50%, right? It’s less because of the zero. I think it’s about 48.5%. But distribution patterns mean that if you considered a couple of hundred spins you would probably not get exactly 48.5% blacks. You might easily see 51% black for example.
So what if you did that, took those results and said, Wow, 51% black in backtests! Cool, let’s develop a robot that always bets on black …
It would lose money.
Of course the forex market is a little more involved than a roulette wheel, but still I think that’s basically what developers do if they build a forex automated system based on past results. And I think that is why they often fail.
I am not saying that you should not use forex robots, not at all. An automatic forex trading system like FAP Turbo can be a wonderful tool.
I’m simply saying that we should all consider how they have been tested. Do not rush to buy the latest forex robot the same day that it is launched. Wait a few weeks at least, check the forums and see how other users like you get along with new automatic forex trading systems before you push your money into the developer’s grasping hands.
Jason Cline writes articles about forex currency trading systems programs and the forex exchange trading market for several web sites.
Find out what he thinks of the best seller FAPTurbo in his FAP Turbo review.
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