but there are good reasons for black box traders to operate on an undisclosed basis. To do otherwise could invite other traders to replicate the strategy. So for the average investor, the most relevant consideration is the profitability of a particular black box model.
Proponents of black box trading think that this quantitative approach is the only way to make money over the long term and that taking emotion out of the equation in this way is key. In a volatile market, even seasoned traders react emotionally and sometimes change course. Black box trading is probably a good solution for investors who can let go and let the models discipline prevail.
Besides removing the human emotional component, there are other practical reasons for developing computer models to capture profits in foreign exchange trading. For one, its a 24/7 market and the computer never sleeps. So whenever the optimal conditions specified in the model present themselves, youre virtually guaranteed an execution.
And, unlike the equities markets, the market is very fragmented. There are scores of banks that make markets in currencies. Combine this with the explosion in available trading data (quotes, bids and offers) and the need to make split-second decisions and it becomes clear why working with a black box expert is a practical way to participate in this market.
If youre considering black box trading, be sure to use a trading system that features a demo account you can easily download and use without providing a lot of personal information. This will give you a chance to trade on a trial basis before you allocate a larger sum to the foreign exchange portion of your portfolio. Also, make sure the system has a track record of profitability.
Be wary of systems that require significant up-front fees to get started. This could be a red flag that the system is locking in its returns right away but you may end up struggling to turn a profit. Most reputable systems offer a money-back guarantee if youre dissatisfied.
The bottom line: If youre an investor with a medium to high tolerance for risk, foreign exchange black box trading could add a new dimension to your diversified portfolio.
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