There are always two sides of a coin – the same holds true for forex trading systems. In as much as there are a lot of traders waxing praises about automated trading systems, the downside of these trading systems cannot, and should not, be ignored by anyone considering to by one of these trading tools. A forex trading systems is essentially an automated tool that traders can use in order to trade the forex market. This is done by entering instructions on the program and having the program transmit his orders to the global forex interchange.
There seems to be no other better way to trade the forex market today than through these modern trading tools. Modern traders, however, will have to take note of the disadvantages these tools provide so that they can take the necessary steps to maintain the system’s usefulness in their trading activities.
Some of the most common downsides to using automated forex trading systems include:
- Power and connection issues. Forex trading systems run on electric power and the trading orders go through internet communication lines. As such, disruptions in power or internet service can also affect one’s trading activities. In some cases, trading orders are left on the computer and are not sent out for implementation. Power outage problems can be addressed by having a stand-by alternative power source that can run the computer for a few hours or at least an ample amount of time during which any position can be taken and trades can be executed. Internet connection issues are often solved by server-based trading platforms and software.
- User dependency. These systems do not run independently and cannot possibly make their own trades. Even if there are wizards on some of these systems, traders will still have to be able to choose their options themselves and indicate the kind of analysis they want to use and what kind of indicators to use as basis for making a trade. The trading system is dependent on the trader and will execute whatever trading instructions the trader inputs. Those who think that they do not have to learn about the technical aspects of the forex market are definitely mistaken.
- Tendency to curve-fit. The term curve-fitting refers to the way most forex trading systems “force-fit” current trends with past data. This practice results in unrealistic projections using back-tested results that are not reliable and guaranteed to remain the same given current conditions. Curve-fitting is also referred to in the market as over-optimizing. It is important that everyone trading the forex market, whether with an automated system or through manual means, realize that there is no perfect way to trade the market and be assured of gains. Curve-fitting only succeeds in failed live trades that otherwise showed positive results in back-testing.
Knowing these disadvantages presented by forex trading systems would allow traders to adjust their trading strategies and routines accordingly. There is no perfect trading system that will bring perfect results every time. What every trader should concentrate on is learning how to device the right trading strategy for his kind of risk appetite and his available trading funds. While doing so, it is highly recommended to test strategies for lengths of time before applying them to live trades.