And you say you have a strategy ?

It is pretty easy to see why so many people fail to profit from forex trading when you look at the way this form of business is portrayed online. Today I was doing my monthly research on new trading systems and developments in forums and I found out the same thing I always find. These “trading systems” which are misleading, poorly explained and that have no results whatsoever that any trader could use to see their profitability.

I cannot even imagine how bad this “online forex world” is for someone who is just starting to trade. You just need to search for “forex trading system” and you will find a myriad of websites with tons of articles describing systems and ways to trade the market which have absolutely no track record or proof of profitability. For example, when you search for something very simple as “moving average” you quickly find a ton of systems based on different moving average crosses, etc. The same thing happens with every indicator. The problem is not that there are websites describing “how to use” these indicators but the problem is that many times they portray these uses as “profitable” when in fact they have no track record or historical testing whatsoever that can prove their case.

It must be very confusing for someone looking for a profitable system because they will find out that there are a lot of people telling them “use this”, “use that”, “make your own system” but non of them is actually saying anything concrete or showing them any good proof that anything they are saying may actually work. You never see any of these websites talking about a “moving average cross” saying “you can make X every year”, “expect an X maximum draw down”. In fact, to make it worse, most of the time these websites do not even describe the money management aspects of the trading systems or merely say something like “do not risk more than x% per trade” or “I never use more than 100 pips for my stop loss”, etc.

The problem arises when someone tries to describe a manual, very discretionary system as something that can be systematic. I can assure you that I have programmed and backtested more than 30 strategies I have found in websites and forums that claimed “profitability” and non of them have turned to be anything more than “short term profitable” in the best cases. The few that have actually been profitable are strategies that I already knew were profitable like the turtle trading system or the 4 week breakout strategy. Both of these strategies generate profits (you can check the tags for more info) in the long term.

What I am saying is that you should be very careful with what you trade so that you do not lose your money and your time basing your hopes in some manual/automated strategy which may not be profitable altogether. If you are going to trade a manual strategy that is supposed to be systematic you should program it / have it programmed and check its long term profitability. If the strategy is discretionary you should do a manual back/forward test of it as you would trade it live and see whether or not you can generate the profits mentioned by the proposer.

In my experience, most of the time the strategies proposed by people online are actually not long term profitable, sadly, most of the time these strategies are described as “profitable” because of some short term forward testing results or some “visual backtesting” which is something I advice you avoid as it can be problematic (more on this on tomorrow’s post). If you ever want to test a manual strategy on historical data you should run it as you would see it on a live feed.

I can imagine a manual trader who has just started who is just looking for something to “follow blindly” and start making money quickly. I walked a mile in those shoes and I remember the dispair and uneasiness that came when systems entered draw down and I wondered “will it end?”, “how deep will it be?”. Questions like these are supposed to be answered before you even start trading a system and for this reason any automated system I describe always comes with an explanation of the draw down and the profits that can be expected. Knowing ahead of time the potential risks and profits of a trading system makes you trust it and makes you trade it profitably.

If you would like to learn more about the trading systems I have programmed as well as how you too can program trading strategies and test them as well as how you too can design long term profitable strategies please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

Print Friendly, PDF & Email
You can leave a response, or trackback from your own site.

Leave a Reply

WordPress › Error

The site is experiencing technical difficulties.