Someone puts out a new automated forex trading system almost every week now, it seems to me. They all give great results in theory but when users start live testing the bottom line can be very different, as most of us know from bitter experience.

So why do the dreams turn to ashes? Is it the responsibility of the user and the settings that they select? Did the developer advertise fake results? Or is there some obscure law that says that the moment a system is automated, the currency market will alter its course so that it doesn't work? Sounds crazy I know but I've wondered about it sometimes and you too perhaps.

But in reality I don't believe it is because of any of those reasons. I may be criticized for this but this is what I believe actually happens ...

The way a forex robot tends to come into being is this: a trader or traders take a system that has been bringing in profits (or dream up a new one and backtest it), pay a programmer to automate it, and then to cover the cost of the software and make something on it too, they sell it to other traders like you and me.

The critical question comes in that first step. If a system has been working for the trader for a good long time, great. But usually they act much too fast. They depend to a greater or lesser extent on backtests. They know that new robots always sell well, so they can easily cover their investment cost on the automation, so there is in fact virtually no risk in them giving it to a programmer as soon as they think up something that performs well on backtests. They do not necessarily wait for live testing.

So they go ahead and create a new automated forex trading system. Then of course they need people to buy it. They might possibly do a small amount of live testing, but that is risky! What if it made a loss? They couldn't lie about the results so it might be better not to test it live, but release it right now. People are credulous and too many of them will buy on the basis of backtesting by themselves. Quick! the developer thinks, Let's get it out there now while it still seems that it works!

So what is wrong with backtesting? Nothing, if you think that future results will mirror its results in the past. But hey, isn't that the first thing you see in the fine print on all investment documents? "Past results are not an indicator of future performance ..."

Take this simple example. You know that the chances of black winning at roulette are just under 50%, right? The zero makes it less. I think it is about 48.5%. But distribution patterns mean that if you took a few hundred spins you would probably not get exactly 48.5% blacks. You might easily see 51% black for example.

So imagine if you did that, considered those results and said, Wow, 51% black in backtests! Excellent, let's develop a robot that always bets on black ...

It would lose money.

Sure the currency trading market is more complicated than a roulette wheel, but even so I believe this is basically what developers do when they build a forex automated trading system based on backtests. And often, I think that is why they don't work.

I'm not saying that you should not use forex software, not at all. An automated forex trading system can be a very profitable tool. I am simply asking you to look carefully at how the systems that we use have been tested. I would not grab the latest robot the moment it is launched. Wait a couple of months, check the online forums and find out how other traders like you get along with new automated forex trading systems before you push your money into the developer's greedy hands.

Jason Cline writes articles about automated forex trading system robots and the fx trading market for a variety of internet sites.

Find out what he thinks of the best seller FAPTurbo in his FAP Turbo review

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