Forex Day Trading – the Illusion That Will See you Lose

Forex day trading is popular and there are numerous Forex day trading systems sold on the net - but you need to be aware of one illusion, if you buy a system or back test it yourself. This relates to “curve fitting” - If you don’t know what curve fitting is read on.

If you are going to trade any forex trading system you will normally test it on back data first and this is where you have to be very careful. Many “traders curve” fit – either deliberately or without thinking of the consequences.

The Illusion of Curve Fitting

“Curve fitting” involves tweaking the system to fit the data. A common occurrence is for forex traders to find their system doesn’t work first time around, so they create rules and parameters to make it work.

This was once likened by a trader I knew, to shooting at a barn door with a shotgun and then drawing a bull-eye around every shot AFTERWARDS to make each shot perfect.

Of course, no data sample EXACTLY replicates itself going forward and in real time trading the system collapses. To spot a “curve fitted” forex day trading is easy, look for lots of rules and parameters and unique ones used in certain instances.

The Worst Form of Curve Fitting

Many vendors who sell systems don’t even bother trying to curve fit.

They simply make up a track record and put simulated or hypothetical on the disclaimer!

This is done by lots of vendors, who are simply assuming the buyer will believe the simulated track record WITHOUT questioning it and by putting the disclaimer they can say what they want and as they are back testing and know the closing prices its easy to make a profit.

Clues to these forex day trading systems are marketing copy which says the following or similar – “picking tops in advance”, “earn a regular income”, “make x pips a day” and track records with extraordinary performance with no drawdown – all for a few hundred bucks!

These forex day trading track records should not be trusted and you should ask yourself:

If these systems are so good why are they being sold as the vendor could make so much money why bother me for a few hundred bucks?

Well now you know the answer.

The fact is you should only buy a track record in day trading if its real time and shown over two years and you won’t find one – Why?

Because forex day trading doesn’t work.

Why?

Because all short term volatility is random and you cannot get the odds on your side.

There are millions of forex traders trading trillions of dollars in equity daily and to say you can tell which way a market will go in a few hours is laughable.

If you don’t believe me look at the track records ( you will never find a real one) there all done in simulation and hindsight and anyone can make a profit doing that – problem is we have to trade in the real world and that means not knowing the closing prices!

The Appeal and the Reality

Day trading systems appeal to greedy novice or naive investors as it looks an easy way to make money but of course trading is not so simple – keep in mind 95% of traders lose and in forex day trading you can increase this number to 100%.

The logic is wrong and these systems will lose - the fact you cannot ever find a forex day trading system with a real time track record over the longer term proves the point.

If you want to trust a simulated track record and base your forex trading strategy on it, go ahead - but chances are in one form or another it’s been “curve fitted” and that makes it odds on to lose.