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Forex Trading- Backtesting Perils: the Dark Side of Automation B

The high risks involved in forex trading have often compelled traders to highly appreciate computer simulations of market conditions where strategies can be tested. Simulations are mostly used in a process called back testing, where the tested strategy is applied to past data by the trading software automatically, and the results are compared and analyzed in order to evaluate the success of the tested method.

But how reliable or meaningful is back testing? In this article, we’ll take a brief look at this subject.

Back testing depends on false assumptions

Back testing is based on the assumption that past performance has a relationship to future results. Yet the most common and basic disclaimer found on just about every broker’s web page states that “past performance does not guarantee future results”. In other words, the past and present are detached in trading, the forex market changes all the time, so do the rules that the market depends on, and as such, it is not sensible to expect a strategy to be uniformly successful in all market conditions covered by a back testing study. Back testing depends on faulty assumptions, and reaches unjustified conclusions.

Inspires false confidence, and sponsors a faulty approach to risk management

Back testing generates wrong results, and inspires confidence in methods that in fact are flawed in principle even before they are tested. Any trader who risks too much on a strategy that has generated exceptional results in back testing is likely to be heavily disappointed in the actual outcome sooner or later.

Test results have only educational or entertainment value

Back testing can be useful as an educational tool. You can learn how indicators work by testing simple constructions that you create, improving your ability to improvise forex strategies as conditions necessitate them. But back testing results can never justify the relaxation of risk controls, because back testing results do not have any relationship with future realized results.

and they will generate disastrous results if used to justify leverage or high risk in general.

You’re free to do whatever you like with your back tested strategies, but if you get carried away and trust them so much that you give up money management methods, or apply them with no consistency, rest assured that the results will be very different from what you had anticipated.

Forex broker reviews can never be substituted for interaction with, and personal testing of the firms by the trader in live trading with mini-accounts. So is the case with forex strategies. You need to test them in live trading, with real money, and take risks that bear rewards when you’re successful. Back testing can never be substituted for trading, because of the tendency of markets to establish patterns that have little relevance to past dynamics.

Travel Money
Our travel money service allows you to securely purchase foreign currency and traveller's cheques at unbeatable exchange rates as well as zero commission. If you order before 12:30, your travel money will be safely delivered to your home or place of work by the next working day.

Our international money transfer service provides a simple, secure and fast method to transfer funds to and from the UK for both personal and business needs. The transfers are a highly convenient, secure and cost effective way to transfer money to bank accounts in over 70 countries worldwide

International Money Transfers
Whatever your reason for moving money abroad, whether transferring savings for your new life in the sun, investing in high value goods or making regular transfers overseas, we understand that you will want to get as much for your money as you can.

If your business is involved in international trade, whether its importing and exporting or settling invoices in other currencies, you are exposed to exchange rate volatility which can have a detrimental affect on your bottom line.

Whilst currency fluctuations are an unavoidable aspect of international trade we can provide you with a range of international payment solutions to help you manage foreign exchange exposure and risk.

By dealing directly with the currency markets, we can offer rates that the banks find hard to beat. That's why we were found to be the best foreign exchange rate provider by the Financial Mail on Sunday.

No Commission Fee.
Free Transfer on transactions over £5,000.
Better Exchange Rates. We use the volume of our transactions to obtain wholesale rates from the currency markets and pass these savings onto you.
Dedicated Dealer. You will be assigned a dedicated dealer who will understand your needs and explain your options to you in plain English.
Range of Services. Whether you need your foreign currency in 18 hours or 18 months, we have a wide range of foreign currency instruments to meet your needs.
Going the Extra Mile. To add further value we have strategic alliances with 1200 companies.
Commitment to Excellence. We strive to provide a service with emphasis on exceeding expectations and developing long term client relationships.

Our aim is to provide a simple, courteous and cost-effective service to those clients. As we have grown through the years, our aims have not changed, and today we service the needs of thousands of clients in several areas of the foreign exchange market. From private clients buying property abroad to corporate clients with ongoing foreign exchange requirements, we strive to exceed expectations with excellent services and friendly, knowledgeable staff.

For your online Cash Currency Converter please click here now for cash deliveries in the UK of less than £4,000, $5,000 or €5,000

For your online Currency Converter Money Transfers please click here now for amounts over £4,000, $5,000 or €5,000

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