So what is curve fitting?
Curve fitting is testing a system over back data and bending the rules of the system to fit the data. This is similar to shooting at a barn door with a blindfold on and then drawing a bulls-eye around everyone afterwards!
Most forex robots you see are curve fitted and a good clue is - if you see the disclaimer below with the track record read it very carefully!
"CFTC RULE 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown".
Check any Forex trading system you buy for the above and if you see it the track record is meaningless.
Anyone can make a profit in hindsight and bend the rules to fit the data in a back tested simulation - its easy.
The problem is vendors simply make up track records and curve fit them, knowing they will lose in real time (if they had confidence in them, they would of course trade them themselves and have a real one), these robots rely on clever marketing copy and the fact that most traders simply don't read the small print. These traders are either na've, greedy or both and pay for it in the market.
If you must want to trade an automated Forex trading system, make sure it has a real time track record - but beware - there few and far between and expensive. You don't get good performance for a few hundred dollars.
Even if you do find one, make sure you have confidence in how and why it works so you can follow it with discipline.
A Better Way To Trade?
Another way to trade is to simply make your own Forex trading system and this is much easier to do than many traders think. You can soon get a simple robust system together and be making some great FX Profits and we will cover this in the next article in this series.
In conclusion be very careful of forex robots that promise you huge gains with low risk, for a few hundred dollars - they don't work long term, are curve fitted and as you can see from this article, your clue to avoid them is in the disclaimer.
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