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The Dangers of Historical Graphs

Author: Iwan Whiteley Author Ranking Blue | Posted: 08-04-2008 | Comments: 0 | Views: 8 | Rating:  (50) Article Popularity - Green (?) Got a Question? Ask.
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The forex trader’s path is a difficult one, on every corner there are dangers. Whether it be controlling one’s emotions, getting your head around a technical tool, or creating a method that works, there is always something close by ready to rob you of your pips.

This article seeks to look at pitfalls that lie near the end when you are in the process of testing your method. The most obvious thing to do when you have created a strategy is to test it using the historical graphs to see if it actually works. This is an important step is finalizing your method, but it does have dangers:

First, historical graphs can be deceptive. It is very easy to ‘accidentally’ look forwards in the graph to see what will happen and then create hypothetical trades that seem to be profitable when they actually aren’t.

Second, it is easy to create a new rule on the spur of the moment and then not employ it consistently in following trades. Consequently a person may believe that the method works when it only ‘works’ this time.

Third, there can be unforeseen complications in real time. For example, you run through historical graphs using a stochastic strategy and it appears to work. The idea is that when the two lines cross you get into a trade. The problem can be that in real time it is actually difficult to know when the lines actually cross and a person can get in too early or too late.

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