5 Reasons Why Rule-Based Forex Systems Don’t Work

5 reasons why strict rule-based forex systems don’t work

1. They eliminate human discretion

One big problem with strict rule-based forex systems is that they take away the potential of benefiting from human discretion. Developing a “gut” trading instinct is something that comes with months and years of screen time and trading experience. Eventually this gut trading instinct will become part of your trading method, if you use a strict forex system based on rules, you must follow these rules exactly otherwise the system is basically nullified. Most professional traders use some degree of discretion when planning out their trading entries, this is something that is invaluable and comes through years of trial and error. Go and read any of the Market Wizards books by Jack Schwager and you will quickly realize discretionary trading instinct is something that nearly all professional traders incorporate into their trading routine.

2. They attempt to control the uncontrollable

Another primary reason that rule-based forex systems don’t work is that they essentially are attempts to control the uncontrollable. The forex market is driven off of human beliefs and decisions that may or may not be fueled by emotion. There are so many variables that can influence price movement in the forex market that it is literally a mathematical impossibility to try and automate or program a piece of software to accurately trade the market. Even though this is the case many internet marketers and computer programming experts still attempt to make programs that they claim can bring consistent profits. The reason such software exists is because it is extremely easy to market and sell for a high price, and everyone wants to just be able to push a button and get rich, so it sells very well despite the fact that it is not effective over the long-run.

3. They teach you nothing

Blindly following a strict rule-base forex trading system will not teach you anything of substance. If you want to obtain an in-depth and useful market perspective, you need to learn how to trade from forex trading strategies instead of rule-based trading systems or software programs. Essentially all you do when using forex trading systems that are derived from rules or computer programs is act like a slave who waits for a trading signal and does not put any thought into what they are doing.

4. Decreasing effectiveness

Unknown to most beginning forex traders is that most forex trading software programs or other rule-based forex systems are fit to specific market conditions during specific periods of time. These forex systems are not effective in all market conditions and typically only work well in trending markets, which is a problem because markets tend to spend more time consolidating than they do trending. Strict rule-based forex trading systems will lose effectiveness over time because the forex market is constantly ebbing and flowing and switching from volatile to calm very quickly, the only tool that can accurately make sense out of this price action is the human mind.

5. Too good to be true

Finally, if a forex trading system sounds too good to be true, than it most likely is. Many forex trading software programs or other rule-based trading systems are parked on web sites that ramp up the performance of the trading system, making it sound so amazing and profitable that you almost can’t help but buy it. The problem is that talk is cheap and money goes quickly. Meaning, it’s easy to make a forex trading system sound really good and look really fancy on a website. However, most of these systems do not perform how they are advertised and are also very expensive. Save yourself some valuable time and money and learn a forex trading system that gives you a comprehensive perspective on the market instead of telling you to blindly follow a set of illogical trading rules.