does automated forex trading really work?
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Does Automated Trading in the Forex Market Really Work? Please don’t let the title mislead you; I will not be spending the next 2 pages bashing automated trading. I do feel it serves an important function in the Forex trading industry, especially for new traders or those that are trying to diversify their portfolio with Forex but do not have the time to dedicate to become a day trader. However, just like trying to trade Forex on your own, it’s not just pressing a button, and setting and forgetting. Finding automated systems or signal providers has just as many pitfalls as self‐directed trading. The common mistakes come in different shapes and sizes and arise more often from delusions of grandeur rather than a lack of skills or intelligence. So asking the question does automated trading really work? Yes but there are certain insights you need to be aware of before selecting an automated trading system, website, or expert advisor. Here are 5 insights to help you find out if automated trading is right for you. Insight #1: Past results DO NOT guarantee future success.TRANSCRIPT
Does Automated Trading in Forex Really Work?
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Does Automated Trading in the Forex Market Really Work?
Pleasedon’tletthetitlemisleadyou;Iwillnotbespendingthenext2pagesbashingautomatedtrading.IdofeelitservesanimportantfunctionintheForextradingindustry,especiallyfornewtradersorthosethataretryingtodiversifytheirportfoliowithForexbutdonothavethetimetodedicatetobecomeadaytrader.However,justliketryingtotradeForexonyourown,it’snotjustpressingabutton,andsettingandforgetting.Findingautomatedsystemsorsignalprovidershasjustasmanypitfallsasself‐directedtrading.Thecommonmistakescomeindifferentshapesandsizesandarisemoreoftenfromdelusionsofgrandeurratherthanalackofskillsorintelligence.Soaskingthequestiondoesautomatedtradingreallywork?Yesbuttherearecertaininsightsyouneedtobeawareofbeforeselectinganautomatedtradingsystem,website,orexpertadvisor.Insight#1:PastresultsDONOTguaranteefuturesuccess.Thelogicis:theyhavebeensuccessfuloverthecourseofthelastnumberofmonthsoryears,whywoulditchangenow?ThisisBYFARthenumberonemistakemadewhenchoosingasignalprovider!Peopleseethesepastresults,lookthemoverquickly,asknoquestionsofthesignalproviderorEAcreatorandjusthandovertheirmoneytoopenanaccountassumingtheywillprofit.Bottomline:Previousresultsdon’tmeaneverything.Previousresultsshouldbeoneofseveralfactorsusedwhenevaluatingatradingsystem.Insight#2:PercentageofwinningtradesisNOTthemostimportantstat.Alotofonlinetradingandautomatedsystemsshowthesefantasticresultswheretheywin30‐40tradesinarowandpeopleassumethatthisequalshugeprofits.Onthesurfaceitisagoodthing,butyouneedtodigdeeperandfindoutwhathasgoneintothesetradestomakethemsuccessful.Theprimarythingyouarelookingforisdrawdown.Drawdownishowmuchriskthetradingsystemiswillingtotakewhilewaitingforthemarkettoswinginthedirectionofthetrade.Thereasonthisisimportantisthatatradercouldmake30successfultradesinarowmaking10pipsoneachtrade.Hethenmaytake2tradesforlossesof22pipseachandwindupwithasuccessrecordofover95%butstillhavelossesinhisaccount.Bottomline:Forgetaboutconsecutivewinningtradesorpercentageofwinningtrades.Focusonthetradingsystem’sdrawdown.Thetypicaldrawdownyouwanttolookforislessthan10%inanidealworldbutyoushouldbelookingatanythingwithmorethan20%asanabsoluteMAXIMUM.Iftheriskmanagementisupsidedown,thatisastrongindicationofasystemwilleventuallyfailandleadtoheavylosses.Insight#3:Ifyoudon’tgettotestthesystembeforeyoubuyit,it’sNOTok.Incertaincaseswithtradingsignalsorautomatedtradingsystems,thepricetagcanbequiteexpensive.Ifthesellerdoesnotgiveyoua15‐30daytrialperiodorsomekindofmoneybackguaranteethatisaMAJORredflag.Thiscancauseyoutobeadouble‐loser:shellingoutbigdollarsforanunsuccessfultradingsystemandlossesinyourtradingaccount.Bottomline:Mostlegitimatecompanieswhoaresellingsignalsorsystemswillgiveyouatleasta2‐weekdemooramoneybackguarantee.Beverywaryofthecompanieswhodonotoffertrialperiodsormoneybackguarantees.
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Insight#4:Automatedtradingorsignalsystemsarenotjustsetitandforgetit.Whenatraderbuysasystemtheyfigurealltheyneedtodoissetitupandwalkaway.Whilethistechnicallycanbedone,leavinganautomatedtradingsystemunattendedtoletitrunonitsownisoneoftheworstthingsyoucando.Thesystemcouldblowoutyouraccountinadayoraweek.Inaddition,asystemcanmalfunctionifitisnotsetupwiththerightparametersorifthebrokercan’tsupportitverywell.Ihaveseensystemsthatwereup20%inamonthandthendown40%aweekafterthat.Bottomline:Spend5minuteseverytradingdaymakingsureyourtradingsignalorEAisrunningproperly.Thisisyourhardearnedmoney!Don’tletitoutofyoursight.Insight#5:LengthoftradingrecordISimportant.Whenreviewingasystemyouwanttoseeatleastoneyearoflivetradingsoyoucanseehowitperformedindifferentmarketconditions.Somesystemsstartouttradingverywellinarangingmarketbutthenmarketconditionschangetoatrendingmarketandthesystemfallsapartandyouareleftwithanemptyaccount.YouseethisalotwithnewsystemsandEAsthatcirculateintheForexcommunity.SignalXbecomesalltheragebecausetheymade50%inamonthandeveryonerunsoutandbuysit‐andthenittanks.Youeithergetasmallgainfollowedbyahugelossoryouarelatetothepartyandyouraccountgoesstraightdownafteryoubuywhatyouthinkistheultimatesystem.Bottomline:Don’tbefooledbyhypeorsalespitches!Ifasystemissuccessful,itwillworkformorethanamonthandthecreatorwillcontinuetoupdateittoadjustformarketconditions.Ifyouseesomethingpromisingwithafewmonthstrackrecord,keepitonyourradaruntilitismoreestablished.Conclusion:Unfortunately,therearemanymorelosersandscammersouttherethanhonest,successfultradingsystemproviders‐soalwayserronthesideofcaution.DoyourresearchandavoidthecommonmistakesoutlinedabovethatmanypeoplemakewhenchoosingaForextradingsystem.Youwanttoinvestinsystemsthatyoufeelconfidentinandnotworrythatatanygivenmomentthebottomcandropout.It’syourmoney!