We’ve all seen the hype – automated trading robots and expert advisors promising astronomical returns and quick profits. You may have wondered whether these claims could possibly be true. Maybe you’ve even spent your hard-earned money on one or more of these products, only to be disappointed in the results.

I can’t tell you whether the latest offer to double your money in 5 weeks is real or not. (Though it probably isn’t). But I can tell you what to look for when evaluating any forex robot or expert advisor.

The Folly of Backtesting

Most people who sell expert advisors and robots back up their claims with an impressive historical backtest that shows a perfect linear equity curve and huge profits. Now, we’ve all seen EAs that look great after optimization, but perform poorly in real-time trading. Why is this? The answer is called “curve-fitting.”

When you optimize a trading strategy, the greater the number of settings optimized, the more likely that the results will be fitted to the historical data. An EA that has had all of its settings optimized at once can produce very impressive backtesting results that will trade poorly going forward.

Another consideration is how often the robot trades. Does it only trade at the close of the bar, or does it place trades intra-bar using a very short timeframe? Tick data during backtesting is extrapolated, and not 100% accurate. Therefore a short-term “scalping” EA will perform much differently than its backtested results.

In a nutshell, you shouldn’t trust any backtesting results for a commercial EA unless you performed those tests yourself, and even then you should take them with a grain of salt. Don’t spend your money on a commercial trading robot unless you see real  trading results from other users. Even trading results from a demo account are better than a backtest.

High Risk: The Key to Large Profits – and Losses

So maybe you have found an EA that produces outstanding profits, and you’ve got the trading results to prove it. How does it perform so well? Lets consider an example of a modest automated trading system, one that uses appropriate money management and risk control (i.e. stop losses).

A good, low to moderate risk automated trading system can make profits of 5-15% a month. But not every month is a winner, and some months may make more profit than others. On the other hand, our outstanding EA is doubling its money every 2 months. Which would you choose?

Stories abound of traders who have used such trading systems, raking in the profits until a large loss takes a big chunk out of their account, maybe even resulting in a margin call. Why does this happen?

The answer is that the trading system was taking on too much risk. High risk means trading many lots at once, doubling after wins or losses and using very large (or no) stop losses. These systems can work well for a while, until the market suddenly turns against them and you’re left with a very large drawdown.

It’s recommended that you use no more than 1-2% of your equity per trade, and that you limit your total loss per trade to an amount that you’re comfortable with. A system that trades many lots at once and doubles lot sizes will quickly assume far more risk than is advisable.

So next time you see an EA or trading system that promises, and maybe even shows, substantial profits, consider the risks. If you choose to trade a high-risk trading system, keep your lot sizes small and don’t let equity losses exceed a predetermined maximum risk level.

An Alternative to Robots and EAs

Perhaps you’re tired of spending money on EAs that don’t work, and you’ve been unable to find an automated robot that offers actual trading results or a sane risk profile.

It’s possible to evaluate and trade hundreds of profitable trading systems, all with actual historical trading results, without having to pay hundreds of dollars. Online automated trading services such as ZuluTrade, Rent A Signal and FX-Auto allow you to experience the benefits of automated trading without having to spend money on robots or expert advisors.

All of the trading systems show actual forward-tested results, and in many cases there is live trade data to back it up. There’s no software required, and trades are automatically placed in your account. The best part is — it’s free! Read on for more information and reviews on these automated trading services.

Remember what you’ve learned about high-risk trading systems. You will encounter systems that are very risky, but if you look, you can find trading systems with low to moderate risk and a smooth equity curve. Pick a few of these, set your lot sizes appropriately, and watch the profits roll in.

As a trader you’re probably looking for free forex robots and trading systems that can actually work. In short there are plenty of excellent expert advisors and forex robots that are being given away for free that can yield fairly good results. However in most cases the ending result isn’t based on whether or not the automated trading robot actually works, but rather if you can follow a simple set of rules and discipline yourself as a trader.

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Most free forex systems come with a trial, where you can try the product for a given amount of time and actually use the signals it provides and if it’s a winner, you keep it, if not you can cancel. I tend to like these over other systems simply because there are so many on the market today, rather than having to pay full price to test them all, you can simply give them a shot for free for a few days. If it’s a winner, I add it to my portfolio; if it loses I cancel my trial.

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Never test a new forex signal service provider or trading robot in a live account. Make sure you run your tests in a test account first before putting in real money and going live. Often times people will assume that because the signals have worked in the past they will always work in the future and for that reason it’s always safe to run your forward test in a dummy account first. One of the most common trading platforms for testing is known as MetaTrader4, a free trading platform where you can execute trades in real time in real market conditions.

There are literally hundreds of signal service providers out there and loads of forex robots. To identify the ones that are actually going to work for you be sure the system has a complete set of data for both back testing and forward testing in real time. There are goldmines out there in the trading world, you just have to make sure you test them first and do your due diligence.

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Online you can buy Forex Expert Advisors and robots which promise an income for life for around 200 dollars or less but this is fantasy and the reality is a quick wipe out of equity. The reason why is obvious and enclosed.

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Let’s ignore the fact that if you really could get an income for life of such a small outlay the whole world would be trading and not working and look at the track records they produce.

If you look at the track records the simple fact is you don’t get one that has this to give you confidence:

Verified and audited by an independent third party and surely that is what you expect when anyone gives you performance figures?

Not with these systems, you get figures going backwards simulated in hindsight, knowing every high and low, so its not hard to buy and sell where you wish and make a profit; the problem is in real life is you have to trade forward, not knowing this key data! You do get other vendors who tell you what the system has made but it’s from them, with no independent verification.

Fact is these systems are so cheap, because they make no money and think about it – if they worked, all the top currency traders in the world (none of whom would have a real track record as good as those claimed by the robots) would be sacked. Better to spend 200 dollars, than have a multi million pound salary bill! Surprisingly this hasn’t happened and never will.

You can make money at Forex trading and you can win but you need to educate yourself or get a system with a real track record which can be verified. There is no success without effort but for the effort you make, no other business can offer you such outstanding returns for your time.

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