I bought a forex trading system which claimed the above a few years back and it claimed the above. So how good was it? Well what happened to me happens to well over 90% of people who buy trading systems off the net so read on …
The system was based upon artificial intelligence and actually claimed to be able to think for itself and was devised by a really bright guy a NASA engineer. I was really impressed and decided to give it a go.
The first week it made 20% then over the next 5 weeks it wiped out the entire account and there is a lesson here for anyone thinking of buying a forex trading system.
The lesson is – check the disclaimer closely on the track record, mine had the one below which, you will see on just about every system sold online, here it is:
“CFTC RULE 4.41 – Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown”.
When I read it now I can’t believe how dumb I was. The system had never been traded for real, just in hindsight and of course that’s easy. I was simply impressed with the vendor, he was a nice and very bright guy – but he had simply build a clever system and curve fitted it and that means equity wipeout.
He created rule after rule and bent the system to make a profit on the data.
The problem of course is no two pieces of data ever replicate themselves exactly and the system failed.
This is called curve fitting. A trader I know once likened this to shooting at a barn door than drawing a chalk circle around everyone – AFTER the shots had been fired, to make them all look like bulls-eyes.
Today nothing has changed, most system vendors promote a system based upon a simulated track record which has been curve fitted and is destined to fail.
My advice is if you are buying a forex trading system, is you see a simulation, be wary and either discount it and move on, or see if the system has been curve fitted.
Clues to a curve fitted system are:
– Lots of rules and parameters
– Unique rules for different markets
– Unique rules for different trading conditions
– Subjectivity on trading signals to override rules
Generally, you’re best of with a simple system which has few elements top break in real time trading and the comfort of a real time track record with audited statements over at least 3 years.
Be careful when you choose a forex trading system and always look for curve fitting before buying.