Forex Day Trading - Beware Of Curve Fitting Or Lose

By: Monica Hendrix
Forex day trading simply doesn't work and traders get wiped out yet, it is very popular and this popularity has nothing to do with profits and everything to do with curve fitting so lets look at.

Curve fitting is the bending of parameters of a system in hindsight to fit the data.

This is done by some traders who don't know what their doing and by forex day trading vendors who know exactly what their doing.

A trader I know compared curve fitting to - shooting blindly as a barn door, then afterwards drawing a chalk circle around everyone, to make it look like a bulls-eye!

Many traders test their day trading system over a period of data and they cant get a profit with the parameters or inputs they are using so they simply bend the system to fit - by optimizing the system rules. Of course, no period of data replicates itself exactly in the future and the optimized system collapses.

A curve fitted system normally has a lot of rules or parameters and unique rules and parameters for different market conditions or currencies and if it does - it will break in real time trading.

Forex traders don't just do this in day trading they do it in all areas - but its very common in day trading.



Vendors on the other hand, know that forex day trading is a good story and they therefore want to make an attractive track record to sell their system - so they optimize it to show big profits and low risk. If you look at some of the track records produced you know they can't be real - or not for a few hundred bucks!

All they do is present the track record and then put a disclaimer on them, to cover themselves and this the disclaimer you will see:

"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 show".

So you can make up whatever you wish as you know the closing prices. Of course, in reality these track records never make gains in real time, as the vendor does not have the advantage of the closing prices and being able to manipulate the track record.

Investors who buy these forex day trading systems from vendors, don't stop to think that these track records are not worth the paper their written on, trade them and lose.

Vendors make a lot of money from day trading by selling systems NOT trading the markets.

The buyer takes the loss and the vendor makes a profit from the sale.

You will never find a real time track record of profits (or if you do let me know) because day trading simply doesn't work. Here's why:

In daily time frames, all volatility is random and prices can and do go anywhere in a day. Support and resistance levels are meaningless and cannot be traded, you can't get the odds in your favour and you will lose.

Don't believe me?

Then try and find a real time track record and you wont get one.

Sure, those day trading track records look attractive - but keep in mind their almost certainly curve fitted, done in hindsight and will not repeat their profits in the real world.

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