Automated Forex trading has already been proven profitable numerous times, however, there is still a vast majority of people who although they do their best and use proven products still cant seem to be able to make consistent profits out of them.
Now to some people, this might seem really weird shouldnt an automated Forex system produce the same results for everyone? Actually, a good system is just one of many pieces of the puzzle there are many other factors that determine whether and how much you will profit from the product you purchase.
If you did exactly the same thing as another person, then yes, the system would produce identical results. Those things include the VPS you choose, which influences the latency to your brokers server, the broker you choose, which influences the prices and slippage you get and also however absurd it may seem at the first sight how you can handle your emotions.
But arent
automated trading systems supposed to eliminate the humans weakest point emotions?, you may ask. Well, they would, but only in case you set the trading system up, totally forget it and dont come back sooner than after a year of trading. However, thats not what most people do, thats why psychology influences your success more than anything else does, even when you use an automated trading system.
If you dont believe so, just look around some forums where people discuss particular trading systems way too many people get excited after their new EA takes first few trades, which end up in profit and get sed if their new EA takes those and end up in loss, although the result of the first few trades can have nothing to do with the long-term performance.
So what is the best way to find out whether or not an EA is worth adding to your portfolio? What I personally use is the following procedure:
First off, I perform a backtest to see whether a system was consistent in the past. If the backtest shows too much inconsistency, I wouldnt trade it even if the forward test was OK, because it is a sign that it will break sooner or later.
Now we all know that backtesting is not reliable enough, so now we need to let it run for 4 6 weeks on forward test and then compare the results to the backtest. Now it doesnt matter whether the 4-6 weeks were winning or losing what matters is how well it matches the backtest for the corresponding period. If the backtest shows winning results, but the forward test was losing, it is clear that something is wrong. On the other hand, if the backtest is losing and so is the forward test and the rest of the backtest looks fine, theres still a chance that the EA will perform good in the future.
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