Automatic Forex Trading Systems Do They Work?
December 29, 2008 by admin
Filed under Forex Featured
If you have been on the web for a while, then you have probably seen an advertisement for an automated Forex system. The advertisement probably showed some "actual results" where the traders made a ton of money and if you only pay for the service then you too can easily and effortlessly be on the way to big profits. Is this true?
Yes and no. Automatic trading systems certainly can work because they help Forex users eliminate the pitfalls that they will encounter when trading Forex on their own. These Forex pitfalls include lack of discipline, failure to accept losses and letting emotions get the best of the traders decision making. When a computer is doing the trading it doesn’t get bogged down in excitement or in stress. It doesn’t pull the wrong trigger because it was over excited. The computer won’t see a trade appear that fits all of the criteria that is necessary for a good trade and then hesitate with uncertainty, just missing the trade. And a computer trading system that is designed to take losses when certain conditions are met will go ahead and take a loss. However, with people it is often the case that a loss will occur and they won’t want to accept it, making the loss worse. To learn more about Forex pitfalls, check out our article on Forex pitfalls. So the advantages of automated trading systems are the removal of the "human element". Computers can be precise and make decisions in a consistent manner without letting human emotions distract them.
So automatic systems do remove a lot of Forex pitfalls. But do they generate a profit? Yes and no. It depends on the system. Remember that each automated trading system is made up of a series of algorithms. Those algorithms are designed to crunch numbers and then take actions based on their internal logic. If an algorithm is well-designed then it can and will work. Likewise, if an algorithm is not well-designed it will fail and create losses. Keep in mind that even a well-designed algorithm only needs one flaw to generate huge losses. That means that the system has to be well tested to account for anomalies. In other words, if the system works well 99% of the time but something happens that was never designed to handle, will its logic come up with a bad response and create losses? Having an automatic Forex trading system is like getting a surgery, you want to have the best, most experienced and qualified person do a surgery. You wouldn’t trust your neighbor’s kid to handle the scalpel. The same goes for trading systems.
The problem is that so many systems are available today that you won’t know what you are getting right away. That is why you must do your research. Look at back-testing data. Back-testing is when a trading system is run over historical prices and charts and the results can be determined of how well it would have performed in the past. If it performed well in the past, then chances are it will perform well in the future.
Some systems will do well and other times will fails miserably. If you are buying this kind of product or service, then they will only show you a few charts where the system performed well. I could write a Forex system that would generate random trades and I could probably show you a few great charts of how it performed, but I’d be lying to say that it is consistently successful. If you can’t find back-testing data, then what you need to do is use the service for a while with a dummy account. Before you entrust money to it, let it sit there and run for a month or two and see how it does. Don’t get excited because it made money for a few days. Even a bad system might be able to pull that off. Let it run for a good while and see what percentage of trades are successful and what percentage are failures.
And remember, if you had a system that was always making money by trading for you, would you sell it on the Internet for $20? Probably not. But if you had a good system and didn’t have that much money to use for trading you might sell your system. There are a few good systems out there that fit in this category. So do your research and find them.
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