Evaluating Forex Trading Systems — Lessons Learned from Being in the Trenches

by

One of the most important skills that you should develop to be a successful Forex trader is a skill of evaluating Forex trading systems. Why is this skills so valuable? Because all Forex trading systems are not created equal. Some are great, some are good, and some don’t have a snowball’s chance in hell of ever working. As traders we all want to avoid those trading systems which fall into the last category.

Whether you were buying a commercially available Forex trading system or you are developing your own here are some tips that will assist you in evaluating Forex trading systems.

Beware of short track records — when you’re judging a trading system you should always be very skeptical. One of the things that is a serious red flag is a short track record. To clarify the track record is basically an overview of the system’s performance over a certain period of time. Track records of five years or more give a lot more information to work with than something along the lines of a one or two month track record. A one or two month track record is just way too short. If a trading system is good, and I mean really good, then the system developers should want to show you as much data as possible. If that data simply is unavailable then something is wrong.

Beware of “too good to be true” performance claims — even if a commercially available trading system shows you a long-term track record be mindful of the claims being made. The Forex landscape is riddled with Forex trading systems that claim to have never experienced the loss and other such nonsense. The attempts of Forex trading system vendors to undermine the risks involved in Forex trading has been falling under increasing scrutiny from regulatory authorities. This is actually very good news as it should eliminate some of the trash that is being sold today.

One very common feature of many commercially available for extruding systems is that many of them display high percentages of winning trades. It seems each time a new Forex trading system is released it will try to outdo what is currently available. Just keep in mind that it is not necessary to have a super high percentage of winning trades in order to trade Forex successfully.

Always be mindful of the maximum drawdown — the maximum drawdown is a very significant performance measurement for any Forex trading system. The maximum drawdown lets us know the largest peak to valley dip in a trading systems equity over a particular period of time. If you don’t know the maximum drawdown of a commercially available Forex trading system you should not buy that particular trading system.

We’ve had an opportunity to cover just a few tips with regard to evaluating Forex trading systems. By filtering commercially available Forex trading using the scrutiny of these tips you’ll stand a much better chance of finding the trading system or systems that are right for you. By learning to evaluate Forex trading systems you’re placing yourself miles ahead of many who seek to succeed in Forex trading.

Filed Under: Forex Articles Tagged With: , , , , ,

The Ins and Outs of an Auto Pilot Forex Trading System

by

No single type of product has grown in popularity as rapidly as auto pilot Forex trading systems. Just the thought of having your own personal Forex trading robot make your trading decisions for you, place your trades, and allow you to do nothing is extremely appealing to a large number of beginning Forex traders.

Here are a number of things to consider when deciding whether or not to use and auto pilot Forex trading system.

Broker Forex trading platform compatibility — in order for your auto pilot Forex trading system to function properly your Forex broker will need to have a platform that is compatible with your Forex robot. In most cases this means running MetaTrader, which most Forex trading robots are built for.

The auto pilot Forex trading system developer — clearly the most important thing about any Forex trading system is whether or not it works. Forex trading systems simply cannot be created by anyone, they must be created by people with experience in Forex trading as well as Forex trading system development. If a trading system developer isn’t experienced they can easily create a sense of false hope by designing a trading system which only worked for a particular period of time. For instance, if a system developer has focused on designing a system that works well in a bull market, the system will most likely fail miserably when a bear market comes around.

Need to know the systems logic — if you’re the type of Forex trader that must know how and why your Forex trading system functions then and auto pilot Forex trading system may not be for you. Most auto pilot Forex trading systems are “black box” systems. This means that the system logic is known only to the system developer and not to you the Forex trader. Black box systems are not ideal for those who actually are smart enough to want to learn to trade Forex. Without knowing anything about the Forex trading systems logic you are essentially flying in the dark.

Trading system track record — a lot can be learned about a Forex trading system by looking at its track record. The track record is also known as the performance summary or performance report. This report contains such information as win loss ratio, total net profit, maximum drawdown, etc. The more detailed the track record is the more information we will have at our disposal to be able to evaluate how good a Forex trading system is. Keep in mind that short-term track records are basically useless. A two or three month track record or even a year track record is simply not long enough to provide us with the necessary insight into a trading system.

In theory, an auto pilot Forex trading system sounds like a great idea. In reality beginning traders become more fascinated with the thoughts of automation and freedom from actually having to actively participate in trading, that they fail to evaluate the most important criteria for Forex trading success.

Filed Under: Forex Articles Tagged With: , , , , ,

Forex Tips — Avoiding Too Good to Be True Software Promises

by

So you want to make money in Forex trading? That’s great! When you’re starting out in Forex trading you’ve probably seen an incredible array of Forex trading software for sale. The sales pitch for some of the software simply sounds too good to be true, but how do you avoid the too good to be true software promises?

Here are a few tips that will help us steer clear of Forex software to be avoided:

Don’t place any faith in the testimonials — The testimonials for Forex trading robots are to be taken with a grain of salt. It has been discovered that some of the testimonials are just out and out fakes. Even ones which are genuine can’t always be taken seriously. It appears that most of the testimonials are from new users who have not fully put the Forex expert advisors through their paces. In other words, new users are typically excited by any positive result they receive. These results are typically not indicative of the long-term potential of Forex robot.

Short track record — A Forex robot with a short track record doesn’t really give you very much information to work with. While it’s nice to see a detailed two-month track record, in the grand scheme of things it is virtually useless. It is virtually useless because most any Forex robot can have a good two-month track record.

Very large percentage of winning trades — Avoid Forex trading software which claims to have a high percentage of winning trades. We’re talking about a percentage of winning trades between 90 and 100%. To put things in perspective here, of all the successful traders there are in the world not one of them has claimed to have a percentage of winning trades that is that high. What does that tell you about the vendor who is claiming that their Forex robot is 100% correct. Basically is telling is one of two things. One — the vendor is lying… two — the vendor does not know what they are doing. In either case we quite obviously don’t want to do business with this person.

Guarantees that you will make money — There is risk of loss in all trading and no legitimate vendor would guarantee that you will make money with their Forex robot.

We’ve just covered a few of the basics of what types of things to look out for in too good to be true Forex software promises. This is not to say that there are not good products out there, simply that there are a number of products out there that are definitely to be avoided. The objective here was to give you a list of things to look for in order to filter out those offers in order to save you time, money, and the grief. Remember that a poorly conceived Forex robot does not only cost you the $97-$297 for its purchase, it may also cost you the vast majority of the money inside of your Forex trading account.

Filed Under: Forex Articles Tagged With: , , , , ,