Another interesting topic. Experienced traders often say that past history is not an indication of future results. This statement can be either right or wrong depending on different individuals.
Most retail traders especially the inexperienced ones would often ignore that piece of wisdom - often in small captions that's usually hidden within some fine prints in most forex product and brokers' terms. In the end, fall trap to the promises of unimaginable wealth that trading forex can bring.
Coming back to topic, can someone predict the future results by looking at past trading history (from EA)? Here, I give you my few cents:
NO, if the backtest was generated from an EA. Market is ever changing but EA's are fixed to some simple algorithm to perform well on past market conditions. If you're easily scukered into buying into any hyped up marketing products which show nice backtest results, be prepared to be disappointed and lose your shirt.
We'll use a simple example to illustrate this point. Let's say you are taking a math exam and scored a pathetic 26%. Meaning you failed the paper and in order to pass the subject, you are given the chance to re-sit for the paper. You thought to yourself, "I'll get the answers from the professor so that I can score 100% the next time!". So, you went to the professor and obtained all the answers for the previous test paper by paying some undertable money. You went home happily and did no further revision because you already have the answers.
A week passed and it's time to re-sit for the paper. Little did you know that only 20% of the questions remained the same while the rest are questions which you have never seen before. Well, obviously you will fail once more. Feeling cheated, you confronted the professor and requesting for an explanation and refund. The professor cheekily answered: "I only gave you answers for the previous paper. I did not foresee that the board has decided to change the questions on the future paper. I'm not from the board so screw you. Don't be a wuss, give me few days and I'll go get you the updated answers for the paper you just took."
In summary:
You = trader/ sucker
Paper/ exam/ questions = market
Answers = EA
Professor = EA vendor
Board = market makers/ hedge funds/ banks
If you've seen the movie "Next" starred by Nicholas Cage, you will come to understand that only in knowing future events will you be able to anticipate and prepare for it. By knowing something of the past (especially EA performances), one cannot guarantee exact copy of the same events will take place in the future.
So, there you have it. Never trust your money with an EA just because it shows nice backtest results. The reason why some are able to be profitable for a slightly longer time is only due to an unlikely streak of good luck. The cosmic energy must be aligned so well that they are still churning out green pips.
When I have time, I will talk about predicting future events like a voodoo priest!
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