2Bull Forex Blog

Day trading in forex and shares is extremely popular, however there is an illusion that day traders fall for that can and does wipe them out.

Are you falling for this chart illusion? Read on and find out..

Successful track records in day trading are normally simulated in back testing over closing data.

The problem is in any form of trading - day trading included, you have to be careful not to “curve fit”. n

People selling day trading systems do this on purpose and traders testing their own system do so without realizing it.

They then get a profitable track record.

Now these track records worked in back testing and never work going forward.

Why?

Because, all day trading volatility is random and you cannot predict, or get the odds in your favour - that is why a day trading system NEVER makes profits in the market in real time.

So what is curve fitting?

Curve fitting is bending the data to fit the price history. If the system doesn’t work you simply optimize it so it does, by bending the system to fit the data.

This is simply like shooting at a barn door and then going and drawing a chalk circle around everyone to show it’s a bulls-eye.

Roulette systems are a bit like day trading, there both games where you cannot predict the future in, but if you look back - there seems to be an order in HINDSIGHT, but of course there is none – its an illusion.

The proof of the above is you will NEVER find a day trading system that makes money in real time; simply ask any vendor to give you one to prove this.

Why Traders curve fit

Vendors curve fit on purpose to catch the mug trader who believes he can get rich day trading.

On the other hand, there are traders who think they can do it and bend the data without realising what their doing - constantly tweaking the system until it works.

Vendors know day trading is a good story and don’t care if the system makes money or not as their selling systems and the trader testing his own system does not realize he is curve fitting.

Of course, if you think about day trading vendors, then if they could make as much as they claim, they would shut up and trade themselves and be millionaires, rather than try and sell you a system for a few hundred bucks.

The Illusion

What works in hindsight does not work in real time and the answer is due to curve fitting.

The Reality

If you have no reliable data you cant make money in real time trading.

Day trading has no reliable data, as all short term volatility is random and prices can and do go anywhere.

The proof of this is you never see a real time track record, the simulation of profits in hindsight is simply an illusion, caused by curve fitting.

I’m here to talk to you about which is the best stock to buy. It’s not like there is a stock out there that will always be the best stock to buy and all you have to do is buy it and that’s it, your rich. No. The best stock to invest in is always changing in time and you have to be aware of the stock markets changes in order to know which one is the best one for that time period.

Also, you will need to buy stocks from more than one company in order to truly succeed in the stock market. Something like “don’t put all your eggs in one basket”. That means that there isn’t only one best stock. There are more, all your have to do is research, research, research. A great tool to use is the Google Finance search engine. There you can see some history of the company and read news about it.

Here is some relevant points of what you need to be looking for to see if it’s a stock worth investing in:

- Generally, when a company is about to launch a new product their stock goes up in the market
- Merges of two big companies
- Acquisition of small or medium company by a big one
- Smart Joint Ventures
- Good company politics

Those are just the first 5 tips that popped into my head that you need to look for if you want to invest in the best stock picks. There are a lot more that you need to be conscious of. That’s what makes it so difficult to invest in the market. However there is something called penny stocks.

These kind of stocks are generally from companies that are just starting out so you won’t have to do so much research on its past as you would need to do with big companies. There is a greater chance to make some money in the short term with penny stocks than there is with normal stocks. Plus if you get a hold of penny stocks from a promising new company, when the company develops into a great leader in its market, those stocks that cost pennies to you will be worth 100 times more!