Automatic Forex Trading Systems: Why Don’t They Work?

People release new forex currency trading systems practically every week now, it seems to me. All of them show great results in theory but when it comes to live testing the story can be very different, as all of us know from bitter experience.

So why do our hopes crumble to ashes? Is it down to the user and the settings that they choose? Did the promoters fake the results? Or is there some bizarre law of physics that says that the moment a trading system is automated, the forex market will alter its course to prevent it from working?

Sounds crazy I know but but sometimes I have wondered and you too perhaps.

But honestly I do not believe it’s any of those causes. Maybe I will be hammered for this but here is what I believe actually happens …

This is how a new forex robot is usually developed: forex experts take a system that has been working for them (or dream up a new one and backtest it), pay a software developer to turn it into a robot, and then to get back the cost of the programming and more, they market it to you and me.

The critical question comes in that first step. If a system has been working for the trader for a reasonable time, fine. But in many cases they act too fast. They depend more or less on backtests. They know that new robots always sell well, so they are sure to cover the cost of the programming, so there is really practically no risk in them taking on a programmer as soon as they dream up a system that performs well on backtests. They do not necessarily wait for live test results.

So they go ahead and create a new automated forex trading system. Then of course they need people to buy it. Possibly they might do a small amount of live testing, but it would be risky! What if it made a loss? They wouldn’t lie about the results so it might be better not to run it live, but release it to the market right away. People believe what they read and too many of them will buy on the backtest results by themselves. Quick! the trader thinks, Let’s release it now while it still seems that it works!

So what is wrong with backtests? Nothing, if you believe that future results will be the same as its results in the past. But wait, isn’t that the first thing you see in the disclaimer on all investment documents? “Past results are not a guarantee of future performance …”

Take a simple example. You know that the chances of winning on black in roulette are just under 50%, don’t you? It’s less because of the zero. I think it’s about 48.5%. But statistically if you recorded a couple of hundred spins you would probably not get exactly that many blacks. For example you might have 51% black.

So imagine if you did that, considered those results and said, Wow, 51% black in backtests! Excellent, now I will develop a robot that always bets on black …

It would lose money.

It is true that the foreign exchange market is more complicated than a roulette wheel, but even so I think that is basically what developers do when they build a forex automated robot based on backtests. And I think that is why they often fail.

I do not mean don’t use forex software, not at all. An automatic forex trading system like FAP Turbo can be a wonderful tool.

I am just asking you to look carefully at how the systems that we use have been tested. Do not rush to grab the latest forex robot the minute it comes out. Wait a few weeks at least, check the online forums and see how real people like you get along with new automatic forex trading systems before you push your money into the developer’s greedy hands.

Jason Cline writes articles about automatic forex trading systems software and the fx market for several internet sites.

Find out what he thinks of the top selling FAP Turbo in his FAPTurbo review.