Forex Robot Tested

Forex Robot Tested

Shocking Truths About Forex Robot Back Tests And Forward Tests

Retail forex market is experiencing unprecedented growth. It is expected that this market will contniue to grow at an accelerator pace in this decade. This phenomenal growth in the retail forex market is being exploited to the fullest by the forex robot vendors. Every day, a new forex robot is being introduced by these vendors with tall claims. When you take a look at the forward and back test of these robots on their websites, you feel impressed. Most of these screenshots are nothing more than marketing gimmicks to entice novices to buy the robot. When these robots are put through live testing, they fail miserably.

Most of these websites have been designed solely for the purpose of marketing and selling that robot. Almost all these websites talk about Back Test Results. Let’s discuss what these back test results mean.

A back test is done when you use historical data to test the performance of any automated system or what you call a trading robot. Now suppose you have historical data about say one of the popular currency pair GBPUSD. You can back test the robot and see how well it could have performed over that period of six months.

Now a good back test can only be an indication that this robot can work. It doesn’t mean that it will as a back test simply ignores spreads and slippage. For example, the spread maybe 2 pips during the day but it might widen to 5 pips in the night.

When there is some economic news release, again liquidity dries up as most of the big players want to watch the market and stay out under volatile conditions. At the time of economic news release like the NFP Report or other important reports, you might find the spread to widen to as high as 20 pips. When you are doing the back test, these factors are simply being ignored. It is being assumed that the spread is the same say 2 pips. Now, you can well imagine how accurate a back test can be. It can only be a rough indication of the future performance of the robot and nothing more than that. So back testing simply ignores the widening of spreads and the slippage that are always present under live trading conditions.

This was the actual truth about back testing. What about forward testing? When you test a robot on a demo account, it is known as forward testing. When you do demo trading, you are using real time data but the money in the account is virtual or fake.

Demo accounts behave differently than live accounts. You should know this. In demo trading, you are using virtual money or fake money. This is one difference. Let me explain how this makes a difference. When you buy and sell, the broker has to find someone who can take the opposite position. This is known as offsetting.

Now, this offsetting is done automatically by the trading servers with the broker. This might take sometime as the server searches to offset the order placed by the client. Sometimes it is not possible, mostly when the market is volatile. In demo trading, trades that were executed automatically maynot get executed under live conditions. So many trades that got automatically executed on demo trading or what you call forward testing may simply not get executed under live trading conditions. Now, you can well understand that there is no substitute of testing a robot on a live trading account.

About the Author

Mr. Ahmad Hassam has done Masters from Harvard. Read this 40 page shocking
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