Forex Robots - Learn to Spot Curve Fitted Systems or Lose

Many forex traders want to use forex robots and make automatic forex profits but if you want to follow a forex trading system then you need to be able to spot curve fitting or you will lose...

So what is curve fitting?

Curve fitting is testing a system over back data and bending the rules of the system to fit the data. This is similar to shooting at a barn door with a blindfold on and then drawing a bulls-eye around everyone afterwards!

Most forex robots you see are curve fitted and a good clue is - if you see the disclaimer below with the track record read it very carefully!

"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".

Check any forex trading system you buy for the above and if you see it the track record is meaningless.

Anyone can make a profit in hindsight and bend the rules to fit the data in a back tested simulation - its easy.

The problem is vendors simply make up track records and curve fit them, knowing they will lose in real time (if they had confidence in them, they would of course trade them themselves and have a real one), these robots rely on clever marketing copy and the fact that most traders simply don't read the small print. These traders are either naïve, greedy or both and pay for it in the market.

If you must want to trade an automated forex trading system, make sure it has a real time track record - but beware - there few and far between and expensive. You don't get good performance for a few hundred dollars.

Even if you do find one, make sure you have confidence in how and why it works so you can follow it with discipline.

A Better Way To Trade?

Another way to trade is to simply make your own forex trading system and this is much easier to do than many traders think. You can soon get a simple robust system together and be making some great FX Profits and we will cover this in the next article in this series.

In conclusion be very careful of forex robots that promise you huge gains with low risk, for a few hundred dollars - they don't work long term, are curve fitted and as you can see from this article, your clue to avoid them is in the disclaimer.

Learn Forex Part 1

Secrets revealed. Tricks to learn to trade fast without investing any money into learning. . It's the worlds largest financial market with over 1.5 trillion dollars being traded daily. Learn to trade like a pro without spending a cent on learning.

Beginner Tips in the Forex Market - Learn the 4 Tips For Beginners in Foreign Exchange

Some important aspects of forex especially for beginners:

Factors to be Aware Of - a few starting factors which might sound academical but are still important. Leverage - when investing a small capital of your own in forex to control large parts of it, is called leverage. Greater the ratio of leverage in forex, higher the risk factors. Choosing the right broker is also essential - how big they are in the industry, their track records with current and former clients, are a few prerequisites of finding the right broker for oneself.
Right Strategy - for a beginner to jump into forex trading without a solid strategy is simply foolish. Among a lot of strategies existing in the market, it has been seen that the "Trending Strategy" has been most favourable. Over here you pick your indicators and the trends are followed in real time. The currency pattern (e.g. EUR/USD)also shows a pattern. The movement can be followed over a certain time like a month, a day, an hour, etc. Through indicators and forecast tools. So after one makes the purchase following all the above trends, just watch the pairing indications and sell accordingly. Simple tip - buy on the downtrend, sell at the uptrend.
Phrases and Terminologies - one must be well versed with the jargon in the trading industry. Some terms are - Cross Currency, Currency Forward, Currency Futures, Direct quote, exchange rate, forward discount, going long, going short, hedge, leverage, losing the points, pips, speculators, spreads, etc.
Understanding Exchange Reserves - they refer to the foreign that is deposited and held in central banks and other monetary authorities. Currently the term "reserve" also includes gold, IMF reserve positions, and Special Drawing rights (SDRs). These reserves apply to the different assets in central banks which are held in different currencies like USD, euro's, yen, etc. Where a fixed exchange rate system is concerned, central banks benefit from having reserves in that this allows them to purchase currencies in order to reduce liabilities by exchanging assets. The protection of the monetary system from shock as well as the stabilization of the currency from volatility is enabled because of reserves. Additionally, it is also a safeguard against traders that buy an asset and then quickly resell it for a profit.

This is a technique that is referred to as flipping. Large quantities of reserves are perceived to be a sign of strength because it is indicative of the backing that a currency has. During a currency crisis, low or falling reserves are normally an indicator of an imminent run on the bank and its currency. The holding of large reserves is viewed as a security measure for central banks. To an extent, this is true. However, it is only true if a bank can boost its currency by being able to spend those reserves.