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Can We Infer Future Expert Advisors Behavior From Backtesting?
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Expert advisors are programs that are designed to automatically open and close trading orders, according to a set of predetermined rules and logic. Expert advisors are heavily used in Forex marketing campaigns promising enormous quick profits with a zero risk.

Expert advisors can be run with historical data to show what would have been the outcomes if they had been actually traded on past periods. However is past performance of an expert advisor enough to prove its future performance?

My opinion is that it is not enough. Expert advisors cannot ever be tested in a way which will indicate and prove their future performance. The reason for this, is that market conditions change a great deal with time. Market conditions are a reflection of the macro economical situation, which undergoes many changes in time. Any historical backtesting of an expert advisor does not take into account what the future holds and therefore cannot prove that past results are indicative of future results.

Let’s assume you have an expert advisor which has been doing great in both backtesting for a period of four consecutive years, and in a forward testing, which you have traded for a real account with a small sum of money, for two additional years. Is that enough to show that this expert advisor is safe and you can trade with it a large portion of your savings? The answer is NO, because market conditions change and if your EA is doing great in, let’s say, a bullish market, which have been so in the last years, it may not be doing so in a bearish market. You may be putting your money only to see it vanishing during the next three years or so.

The past success of the EA does not mean it will also perform well in the future. It only means that under certain conditions it has behaved well in a certain period in time, and that probably under same market conditions in the future, it can produce similar results.

So is there a solution for this problem? How can we do trade expert advisors and better promise ourselves a future success?

The answer is to use several expert advisors, each having success in different market conditions. The best situation you can achieve is if you have 3-5 expert advisors each having success in different periods in the past, and all together create a portfolio that is behaving well, with moderate consistent success overall. You then can take this portfolio and trade it with the risk level you would like, to achieve the profit target you want to have.

An example of such portfolio of expert advisors is what forex professionals are doing all the time, for example in powertrendsystem.info. The only way to succeed in this field, is to be very strict about the expert advisors you choose, and about the risk each one of them is traded with.


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