Why Automated Trading Systems Often Fail

Filed under: Learn Forex Trading |

Screen shot 2013-06-05 at 09.51.37Many traders, both beginners and those with considerable experience, often get drawn towards the creation of an automated trading system (also known as ‘Expert Advisors’ on the MT4 platform). The attraction of such systems is that you can leave them to trade automatically for you via a computer – the idea being that your account will grow without you even having to lift a finger! Unfortunately, the vast majority of these trading systems are fatally flawed because they are not adaptable to different market conditions.


Let’s take a trend following system for example. When the market is trending, the system is great and works well. However, when the market is choppy, and moving up and down in a consolidating range, the automated trading system will not know this, and it will keep putting trades on as if the market is trending. Although trend following automated systems are probably the best of such systems, profits are minimal, and you have to be very patient and see things through over a very long time period to have any success.


Other Expert Advisors (EAs) use loss recovery systems, and as such, past results seemingly move up in a straight line. They are often backfitted, which means that a logical hypothesis is not tested, but rather, the variables are altered so that a positive result is achieved on historical data. These backfitted systems often do not work out with future results, and loss recovery systems tend to hit a big loser sooner or later to wipe out your bank completely.


Perhaps a good compromise is to use an automated system for entries or trade alerts, and then to manage the trades in a discretionary way. By doing this, you may get the best of both world, and create a very profitable methodology to work with.

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