Don’t Fall Into The Demo/Back-Test Trap With Your Forex Robot

These are sure-fire ways to lead you not only to some unpleasant surprises with your forex robots, but also they serve as a way of leading forex traders to a blown out account.

This isn’t to say that demo accounts don’t have some level of usefulness. They certainly are a great avenue for new forex traders to learn the ins and outs of forex trading. Demo accounts are the appropriate place for a trader that knows he is going to be making most of his trading decisions on his own to get his feet wet in the forex market and iron out some kinks before going into a live account. Demo accounts simulate the feeling of real trading, but at the end of the day, that’s all it is, a simulation. NOTHING can compare to trading with real money.

And that’s why the world of back-tests and demo accounts are loaded with pitfalls that traders cannot simply rely on when it comes to figuring out what works with forex robots. We’re going to examine exactly why you should focus your forex robot testing efforts on live accounts and only live accounts.

Watch Out For Those Demo and Back-Test Results

Those outrageous claims that are made by the developers of forex robots on their sales are, more often than  not, the product of back-tests and simulated trading. This means, you the potential buyer of a forex robot, are not getting the best sense of what the forex robot is really capable of. Back-tests are exceptionally misleading because hindsight is 20/20. It’s not that hard to take old trading data, for which you already know the outcome, and develop a system that turns out winners. Now try doing that with data where you don’t know the outcome. This is called forward-testing and it’s hard for a forex robot to peer into the future and pick winners.

Demo accounts may be worse. When you trade in a demo account, you’re not trading against anyone. In theory, you could make every one of your demo trades a winner by simply holding the losers until they turn into winners. This is an impossible strategy to employ in live trading as you would ended destroying your account. You can’t hold losers in the real world and your forex robot can’t trade around this.

More Issues To Consider

Demo accounts look like a good deal because they are. Most forex brokerage firms give traders access to demo accounts free of charge and they come with $50,000-$100,000 in “play” money. Think about it like this: Are you really going to open a live account with that much money? If the answer is no, then it makes no sense to test drive a forex robot in this environment because it can be misleading and that’s just one more reason to test your forex robot in a live account.