Forex Trading Systems - 95% Fail Due to Curve Fitting

by : Kelly Price

Forex trading systems are popular just switch them on and turn your computer into a regular money making machine. That's the theory, the reality is 95% or more lose due to curve fitting and if you don't know what it is then you should.

Curve fitting is when a forex trading system is bent (curve fitted) to price data to make a profit.

A trader I once knew likened this to shooting at a barn door with a gun and then afterwards going and drawing a circle around each shot, to make it look like a bulls-eye.

Vendors when testing their forex trading systems on past data, find that it doesn't work or doesn't work well enough, so they bend or curve fit the system, until it does.

A curve fitted trading system will never work in real time trading.


Because the data sequence will never re produce exactly again.

Clues to curve fitted systems are:

- Lots of rules and parameters.

- Different rules for different currencies or trading conditions.

- Extraordinary profit and low or little drawdown.

Generally, a good trading system should consist of a few rules and parameters and work the same in all market conditions and in all currencies.

While many traders make genuine attempts and curve fit by accident, most don't - they simply make up the track records and curve fit to make a track record look good. How many systems do you see sold for a few hundred bucks that promise you 1,000% per annum $10,000 bucks a month etc - The answer is loads.

These vendors are NOT traders, their marketing companies and they know they can put out any track record they like so long as the disclaimer has the words "done in hindsight" "simulated" Of course we can all make a profit going backwards - but the problem is we have to trade not knowing the future and that's a little more difficult.

The internet means you see them all the time and while most traders pass them by on the basis that, "if it looks to good to be true it probably is", many others let greed, naivety or both get the better of them and buy them.

If you want to buy a forex trading system, your best option is to get one that's got a real time track record, to show it's based on sound logic.

After all, if the vendor does not have the confidence to trade it why should you?

If you buy a simulated one, then it should be one with very few rules which work on all currencies, in all markets and you should understand how and why it will works.

So when you see that track record promising you untold riches - think curve fitting and think losses rather than profits.

Shop Around For The Good Ones

You can make money with a forex trading system but you need to be careful in your selection.

If you are then your time will have been well spent and you could enjoy long term currency trading success with it.