Can you really make money by following a computerized forex trading system? Well a while ago I bought one and knew the vendor and knew one of his clients made $1.4 million with it REAL MONEY in just a few years. Now that sounds great - but there is a catch with computerized trading systems ...
The catch is executing them - let me explain this in more detail.
I bought the system and it consisted of one parameter and that was it. The logic was easy to understand and you could see why it worked longer term - but do you know what?
I couldn't execute the system in line with the signals and this is a common problem.
My reason was it was at the start of my trading career and I was trading money I couldn't really afford to lose - I put my own input in ruined the system and got my reward - a huge loss.
Serves you right you may say and yes it did - but there are other related problems why traders lose.
Most of the Systems Sold Are Junk
I know now with my experience of trading 99% are junk and will never re produce the gains they make on track records presented - Why?
Well at least on the one I traded had a real time track record - but most sold today, are by marketing companies who simulate in hindsight a track record - well we can all do that knowing the closing prices!
They are normally based upon rules that are not revealed, or rules that have been curve fitted (if you don't know what curve fitting is look up my other articles) and the trader who thinks he will get rich for a few hundred bucks or so gets wiped out - lesson learned.
To trade a system, you really need to look for a real time track record but even with this, you face a problem:
Drawdown
Drawdown is the problem with any system. Those losses on paper, don't hurt like they do when you lose real time.
If you are following a forex trading system always assume the worst drawdown is ahead (and very few good ones drawdown by less than 30%) so, when studying the track record, don't look at average drawdown, look at worst peak to valley drawdown in amount and period of recovery and accept that's going to happen - that way things can only get better.
Following the markets
If you follow a purely mechanical trading system don't watch the news!
Whilst we know its wrong and reflects the herd, when your trading system opposes those sensible news stories, you have a problem of discipline and believe me, those news stories can frighten the hell out of you and make you feel dumb for following even the best systems.
Pay to much attention and you are tempted to interfere with the system and that means the end of your system.
Following mechanical trading systems is hard and you must be disciplined at all times.
You need to ignore the news, accept drawdown cheerfully and understand the system logic and ideally to instil confidence, have a real time track record, to know the system has at least worked and is based upon sound logic.
If you can do the above, then mechanical systems are a great way to make money.
If you cant, then you should devise your own with as much human input as necessary, to make you feel comfortable.
The system I traded on and lost, won for many people and its logic is timeless - but I made no money with it which taught me one of the biggest lessons of my Forex trading career.
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