Forex Black Boxes: Easy Money, or Complete B.S.?
If you’ve looked around for strategies on trading in the Forex market, there’s no doubt you’ve run across a lot of ads talking about the power of a black box system. Some sound intriguing, others sound way too good to be true. So what’s the truth behind these black box systems?
First of all, I’m going to start by saying that not every black box system is bad. Some are extremely effective depending on what the market is doing, and some systems are designed pretty well to deal with the changes in the Forex market. That being said, there are several things that you’ll need to consider and watch out for before deciding on whether or not to trust your real money to one of these black box systems.
A black box system is one that has been worked on by statisticians and traders to figure out that mathematical formula that is going to help them make the right trade and predict where the market is going to go. If it works, the profits can be great.
But there are several things to look out for, including:
1. The system’s past track record
2. Is there a money back guarantee?
3. Does the system require a large up front payment?
4. Is it designed for all three market movements, or just one?
The Triad strategy for Forex trading takes into account that the market only moves three ways: trending, counter-trending, and breakout, and this system has a strategy for all three. Some black boxes may have a great trading strategy for a trending market, but what happens when the market counter-trends? Or the black box may have a great breakout strategy, but the market is rarely in a breakout, so how is that going to perform the majority of the time?
These are all extremely important questions to consider with any black box, as it is YOUR real hard earned money that will be at risk.
In addition, try to do some research and make sure that the system has an actual record of profit. If it doesn’t, that should throw up some immediate red flags. Systems that have large up front fees with no money-back guarantees are also usually ones that you will want to avoid.
The last major thing to be wary of is over optimization. This is when all the data and successful signals are optimized to the point that instead of having a pattern that predicts the future, you have “curve fitting” where you make a line going through all the profitable points without developing an actual projection. This makes it look like a slam dunk because it includes a “successful” past, but it has no ability to predict the future and therefore doesn’t give you any advantage.
In the end black boxes are like anything else: there’s no Holy Grail, but there are solid systems and programs that can help traders make more off the Forex market. As always, look for a proven system that has a history of profitable trades, and when you find it, don’t be afraid to act!
From Jason Fielder – Founder, ForexImpact.com