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Someone launches a new automated forex trading system practically every week now, it seems. They all give good results in theory but when we try live testing the story can be very different, as most of us know from bitter experience.

So why do our hopes turn to ashes? Is it due to the user and the settings that they select? Were the results faked? Or is there some obscure cosmic law that dictates that as soon as a currency trading system is automated, the whole market will alter its course to prevent it from working?

I know that last one may sound a little crazy but but sometimes I have wondered and maybe you have too!

But really I don’t think it is because of any of those reasons. I may be hammered for this but here is what I think really happens …

This is how a new forex robot is usually developed: forex experts take a system that has been working for them (or devise a new one and backtest it), pay a programmer to turn it into a robot, and then to get back the cost of the programming and make something on it too, they sell it to traders like you and me.

The crunch comes in that first step. If a system has been working for the trader for a reasonable time, great. But often they act too fast. They depend more or less on backtests. They know that new robots always sell well, so they will surely cover their investment cost on the automation, so there is really no risk in giving it to a programmer the minute they think up something that performs well on backtests. They do not necessarily wait for live testing.

So they go ahead and create a new automated forex trading system. Then of course they want to be sure it will sell. Possibly they might do a little live testing, but it’s risky! What if it made a loss? They couldn’t lie about the results so maybe it would be better not to test it live, but just release it to the market right away. People are credulous and far too many of them will buy on the backtest results alone. Quick! the expert thinks, Let’s release it now while it still looks like it works!

So what is wrong with backtests? Nothing, if you think that future results will mirror its results in the past. But hey, isn’t that the first thing you see in the fine print on all investment documents? “Past results are not a guarantee of future performance …”

Take a simple example. You know that the odds of winning on black in roulette are just under 50%, right? The zero makes it less. I think it’s about 48.5%. But distribution patterns mean that if you took a couple of hundred spins you would probably not get exactly 48.5% blacks. For example you might have 51% black.

So what if you did that, took those results and said, Wow, 51% black in backtests! Great, so now I will develop a robot that always bets on black …

On live tests, it would lose.

Sure the currency trading market is more complicated than a roulette wheel, but I think that is basically what developers do if they build a forex automatic trading system based on backtests. And often, I think that is why they don’t work.

I am not saying don’t use robots and expert advisors, not at all. A forex robot can be a wonderful tool.

I’m simply suggesting that you should consider how they have been tested. Do not rush to buy the latest robot the minute it is launched. Wait a few weeks at least, check the forums and see how other people like you get along with new forex trading systems before you push your money into the developer’s grasping hands.