orex Systems Evaluation - The Basic Rules
Why do they fail?
There is an old saying about Forex Trading Systems. It is that the systems themselves never fail. It is always the users that fail. And the users fail because they did not make the system their own. That is, they have not built up enough confidence in it to follow the rules without questioning them. The only way to build confidence in a system is to test it until the point one is convinced by the results. The degree of conviction is very important. Traders need to be convinced to a level such that they will intuitively take a signal the very second it manifests itself.
Traders usually say, sometimes in jest and sometimes seriously, that a system will fail five times in a row. The sixth time, when the signal has been ignored, is when it kicks in and makes more than it had lost on the first five occasions. Whether stories like this are true or not, it only serves to underline the point. And the point is that the only way to know confidently that the sixth trade is the trade that is going to make the money is not only to test the system but to know and understand the result of the test. Forex Trading Strategies do not work forever. The reason for this is a simple one
Customisation through trial and error
System are based around fixed rules and Forex Trading Strategies, but the Forex market is dynamic. So users have to periodically, if not continuously, test their systems to check whether or not changes in the market over time have degraded its usefulness. Over time conscientious users should develop a sixth sense. They ought to know instinctively that their forex trading system is out of kilter. For example, if a system in the past has only ever had three consecutive losses but now experiences four consecutive losses, something is probably going wrong. This is a warning signal to be heeded. Users can then do some tests and tweak their system to bring it back in line.
Tweaking a system to adjust its performance to adapt to current market conditions is not the same as curve-fitting. This is where an unproven system is tweaked to make it fit with recent historical data. Most forex software designers and traders are scrupulous about avoiding curve-fitting, which can be disastrous for trading results. But most accept that systems do need changing from time to time to reflect changes in the way the market is working. An alternative is to find another system that works better in the current type of market
Why do they fail?
There is an old saying about Forex Trading Systems. It is that the systems themselves never fail. It is always the users that fail. And the users fail because they did not make the system their own. That is, they have not built up enough confidence in it to follow the rules without questioning them. The only way to build confidence in a system is to test it until the point one is convinced by the results. The degree of conviction is very important. Traders need to be convinced to a level such that they will intuitively take a signal the very second it manifests itself.
Traders usually say, sometimes in jest and sometimes seriously, that a system will fail five times in a row. The sixth time, when the signal has been ignored, is when it kicks in and makes more than it had lost on the first five occasions. Whether stories like this are true or not, it only serves to underline the point. And the point is that the only way to know confidently that the sixth trade is the trade that is going to make the money is not only to test the system but to know and understand the result of the test. Forex Trading Strategies do not work forever. The reason for this is a simple one
Customisation through trial and error
System are based around fixed rules and Forex Trading Strategies, but the Forex market is dynamic. So users have to periodically, if not continuously, test their systems to check whether or not changes in the market over time have degraded its usefulness. Over time conscientious users should develop a sixth sense. They ought to know instinctively that their forex trading system is out of kilter. For example, if a system in the past has only ever had three consecutive losses but now experiences four consecutive losses, something is probably going wrong. This is a warning signal to be heeded. Users can then do some tests and tweak their system to bring it back in line.
Tweaking a system to adjust its performance to adapt to current market conditions is not the same as curve-fitting. This is where an unproven system is tweaked to make it fit with recent historical data. Most forex software designers and traders are scrupulous about avoiding curve-fitting, which can be disastrous for trading results. But most accept that systems do need changing from time to time to reflect changes in the way the market is working. An alternative is to find another system that works better in the current type of market
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