By: Sacha Tarkovsky
When choosing a FOREX trading system or back testing your own, you need to be aware of the dangers of curve fitting.
While curve fitted FOREX trading systems can look good in theory, in practice they rarely work, lets look at why.
Trading In The Past For Profit
When you see most FOREX trading systems you will see a hypothetical track record. A hypothetical track record is exactly as it sounds - one that has been constructed in hindsight, knowing the closing prices.
You never see a hypothetical track record that makes losses!
However, when you try and trade the system for real you do and this is generally because the track record has been subject to curve fitting.
Curve Fitting
Curve fitting, simply involves tweaking the parameters or rules of the FOREX Trading system to make it profitable.
One trader I know once likened this to shooting at a barn door and then drawing bull s eyes around everyone afterwards!
Curve fitted systems normally collapse in the brutal world of trading.
There generally easy to spot: [Read full article]
While curve fitted FOREX trading systems can look good in theory, in practice they rarely work, lets look at why.
Trading In The Past For Profit
When you see most FOREX trading systems you will see a hypothetical track record. A hypothetical track record is exactly as it sounds - one that has been constructed in hindsight, knowing the closing prices.
You never see a hypothetical track record that makes losses!
However, when you try and trade the system for real you do and this is generally because the track record has been subject to curve fitting.
Curve Fitting
Curve fitting, simply involves tweaking the parameters or rules of the FOREX Trading system to make it profitable.
One trader I know once likened this to shooting at a barn door and then drawing bull s eyes around everyone afterwards!
Curve fitted systems normally collapse in the brutal world of trading.
There generally easy to spot: [Read full article]
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