Forex for a trader
Forex backtesting mt4

Forex backtesting mt4How to Backtest an EA on MT4. I’ve received several comments from human traders asking how I am able to run backtests using expert advisors on the MT4 platform. It has come to my attention that newbie traders could appreciate a quick how-to on using the handy-dandy Strategy Tester feature of MT4 so I decided to write a quick guide to help y’all get started. Before we get started though, make sure you’ve finished the School of Pipsology lesson on How to Use MetaTrader 4. This should help you out with the basics of installing an EA as well. Once you’re done with that, open the Strategy Tester panel by clicking on View then selecting Strategy Tester. A panel should magically appear on the bottom part of your MT4 platform. Choose the EA you installed from the Expert Advisor choices. Set the currency pair you want to run the backtests on and the appropriate period by clicking on the menu beside Symbol and Period. Specify the backtesting period by setting your preferred dates and making sure the Use Date box is checked. In this example, I’m running the backtests using EURUSD’s 15-minute time frame from February 1, 2013 to February 1, 2014. To ensure better modeling quality, select the Every Tick option for the model and select Current for the spread. You have to make sure that your price history data is complete to avoid mismatched chart errors on your trading log or have a modeling quality that’s lower than 90%. To do this, head over to the History Center under Tools or simply hit F2 on your keyboard. From the pop-up window, double-click the currency pair you’ll be running the backtests on and check if the time frame you selected is included in the database. If not, select the time frame and click the download button below.

It is recommended that you include the 1-minute tick data for more accurate backtest results, but this might take a lot of space in your hard drive and based on this robot’s experience, it could lead some programs to crash. Don’t say you haven’t been warned! Once the history data is complete, you are finally ready to run the backtest. Just hit the Start button on the right-hand side of the panel and let the number-crunching commence! After a few seconds or minutes (depending on your backtesting period and the speed of your processor), you can be able to view the results through the Graph or Results tab at the bottom of the Strategy Tester panel. As I always mention though, make sure you take these numbers with a grain of salt as past performance is not always indicative of future results. I hope this basic tutorial makes forex robots a little less intimidating for newbies out there! If you have any questions, just post ’em in the comment box below. And for the expert traders around, I’m counting on you to help beginners out! Manual Back-Testing; Practicing the Art of Trading.

by James Stanley , Currency Strategist. Price action and Macro. Your Forecast Is Headed to Your Inbox. But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk. Your demo is preloaded with ?10,000 virtual funds , which you can use to trade over 10,000 live global markets. We'll email you login details shortly. You are subscribed to James Stanley. You can manage you subscriptions by following the link in the footer of each email you will receive. An error occurred submitting your form. Please try again later. Trading, like many other things in life, can be improved upon with experience. This is often where new traders fail. Once realizing this fact, they look at a very simple negotiation.

“Is learning to trade profitably worth my time?” Myself and many other traders would (or maybe more accurately ‘have’) answered an emphatic ‘YES!’ to that question, and embarked on a learning process to get our results to the point that we want. But not everybody would be in that boat. The difficult thing about experience when trading is the fact that that very same experience can cost us money. Over the years I’ve heard many flippantly claim ‘ah, that’s your tuition to the markets.’ And that may be the case. But there are other ways of earning experience in the age-old art of speculation. Grain and rice traders, the original creators of technical analysis, would employ an element of ‘paper trading,’ to track hypothetical profits or losses for the strategies that they are trading. This is akin to demo trading today; a way that we can test our theories and strategies on the market without financial risk. Is this exactly the same as trading live, no, because there isn’t a liquidity provider on the other end of your trade performing ACTUAL execution; but it can allow me to test my strategies in a dynamic environment. The downside to demo trading or demo-testing a strategy is the fact that it may take a long time to get enough results to make a determination for my strategies consistency. If I want to test a strategy on a daily chart, it may take me an entire year just to place a few trades. And after those few trades, I’m not sure I’d be comfortable enough with the strategy to employ it live (after all, only a few trades were placed, how do I know whether this was an anomaly or not). This is where manual back-testing can come into play.

This is a mannerism in which I can simulate a live market environment with dynamic prices. It’s important to note any back-tests that we perform, manual or automated, suffer from a singular draw-back; and that is the fact that past performance is not necessarily going to replicate itself in that manner going forward. But that’s not the point of the manual back-test. The reason I am doing the test is to train myself, using the tools of the strategy being tested, so that I may know how to most effectively employ the approach. I can do this on any timeframe, with any currency pair, and almost any strategy that I trade. Step 1: Dress the chart. The first step when manual back-testing is to dress our charts up with the indicators that we will use in the strategy which we are testing. For this illustration, I’m going to use an 89 period EMA and a 13 period CCI. After getting the chart dressed, we are ready to proceed. Created by James Stanley. Step 2: Take a step back in time. After we have our chart dressed, we need to go to a previous period on the chart.

The here is that I want to be unfamiliar with price action for the tested period. I want prices to be as close to the dynamic of a real market as possible. I want this to be unpredictable. To do this, I can simply click, and drag back in time to get to an earlier date on the chart. Created by James Stanley. Step 3: Walk forward in time. This feature is very beneficial to traders that do a lot of manual back-testing, but often unknown to many. This has to do with the ‘forward,’ and ‘backwards,’ arrows on your keyboard. If I wanted to go back 1 hour, I can simply press the ‘backwards-arrow key,’ one time. However, if I’m testing on a 4 hour chart – 1 press of the forward or backwards arrow keys will be equivalent to moving forward or backwards 4 hours at a time. This is an extremely convenient feature that can allow me to traverse a vast distance on the chart in a short period of time.

At this point, I want to walk forward on the chart u ntil a I find a trade that meets my criteria. Once I do, I will pause, and we’re ready to move on to step 5. Step 4: Record the results. This step can deviate between trader to trader based on style and mannerism of record-keeping. I urge all new traders or those new to manual back-testing to write each of these trades down; whether it be a journal, a spreadsheet, or a trading log. Some key information is of note here: Where would you place your stop? Where would you be looking to take profits? You can record all this information, as well as any other observations that you have made. After a few trades, you will have a few pieces of information you can use to then make the strategy more effective for your goals. Step 5: Rinse and Repeat. After we have found a hypothetical trade, at that point we can walk further forward in the future to get an idea for how it may have worked out. Once again, we can record these results in our journals. Then we can move on to the next trade. We can continue to do this until we feel the comfort, and the experience with the strategy to move on to the next step of testing. For some traders that’s testing with smaller balances, others take the leap directly into live markets, while other, such as myself – will then test the strategy on a demo account with live, dynamic pricing.

--- Written by James B. Stanley. To contact James Stanley, You can follow James on Twitter @JStanleyFX. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Forex Tester is a software that simulates trading in the forex market. It is designed for you to learn how to trade profitably, and to create, test and refine your strategy for manual and automatic trading. Forex Tester 3 has been released! Forex Tester gained even more features and is configured even more easily. Download the free demo version and see for yourself: DOWNLOAD FOREX TESTER 3 OR BUY UPGRADE. Information about the most important features of Forex Tester 2 that will also be in Forex Tester 3: forextester. comfeatures. If you already use Forex Tester 2 then you can download the guide on how to move your projects, templates and data here. Statistics reveal true performance: You can take notes on every trade (keep a trade journal) and export your trade log for analysis on Excel or other programs. ThereЂ™s no longer any need to rely on estimations, or even on wishful thinking! Amateurs have to rely on assumptions and believe what others tell them. Professionals, however, make their decisions based on facts.

Forex Tester will deliver the hard facts about your strategies. If a strategy is not profitable, you will find that out quickly with Forex Tester (contrary to testing in a demo account). Now you can improve it or invest time in developing another strategy. Likewise, if you have a great strategy, you will want to trade as soon as possible. Forex Tester delivers the results you need to do so with confidence. (Good strategy? Forex Tester will let you know pronto => you can start trading it now without hesitation.) When it comes to backtesting a trading strategy, optimizing its parameters can take it from okay to great. Forex Tester makes this process easier than ever. Knowing which parameters make your strategy work will not only make the strategy better, but it can also help generate ideas for new strategies. 7 white papers about the key aspects of trading 3 profitable strategies that we have tested for you The description of the core Forex TesterЂ™s features. Our valuable partners. MANUAL TRADING SYSTEM COMBINED STRATEGIES AUTOMATIC TRADING SYSTEM.

How Forex Tester can improve your trading results: Our program is flexible and realistic! Spreads and swaps can be defined for each currency pair, making the simulation and earning results even more realistic because you can simulate the broker of your choice. The advanced data feed includes historical data from various brokers. Forex Tester enables you to train and test with great flexibility. You even have the option to adjust strategy parameters on the fly without stopping the simulation! You can test more than one EA at a time while observing what is happening during the simulation. Our program is the best solution available on the market, and this is no coincidence: We are traders ourselves, and we initially developed Forex Tester to develop our own trading. Save and return to your tests anytime you want. Forex Tester is all about maximizing your profits (by choosing and optimizing your strategies) and saving time.

One of many details surrounding the project is that it will boost your efficiency. Forex Tester uses project files in the following way: You can save your current session, load another one and then continue the first session later. You can also save color schemes, graphical instruments and indicators, and then add them to the next chart. This is especially useful if you are testing your strategy on multiple currencies and timeframes. Historical data for accurate testing is available FOR FREE. 17 years of recorded price movement of the forex currency market for. We offer Forex Tester at a very competitive price. Forex Tester will most likely improve your net results by much more than what it costs. ThatЂ™s why buying Forex Tester with our money-back guarantee is a no-brainer. If you are serious about trading currencies, Forex Tester will become an integral part of your evolution as a trader, just as it has for so many others before. Many professionals use it on a daily basis to develop new strategies and adjust their proven methods to accommodate the changing market. Our accuracy and flexibility are unrivaled.

An extensive set of indicators and oscillators is included: Moving Averages Bollinger Bands MACDs Pivot Points Parabolic-SAR RSI Stochastic Alligator Keltner Channels Heikin Ashi candles Ichimoku Average True Range and much more are available. Why market simulation makes sense. ItЂ™s often said that 95% of forex traders lose all their money in their first year. So, what makes a trader successful? In interviews, the best traders in history have unanimously emphasized the importance of backtesting. Backtesting means using the historical data of a capital market (price movement records) to determine how well a trading strategy would have worked in the past. While there is no guarantee, very often a strategy that performed well in recent months will continue to generate profits in the future. In manual backtesting, trading many monthsЂ™ worth of recorded market days in the simulation takes just a few hours of your time because you control the speed of the simulated market. This enables you to test not one, but many strategies (in addition to variations). Automatic backtesting occurs in just a matter of minutes, or even seconds.

Forex Tester does both. With Forex Tester, you can practice analyzing the charts and finding opportunities to trade without risking any real money. The importance of learning canЂ™t be overestimated. When you trade manually with real money, you are under stress. And yet, you still have to make quick decisions. This is something you can only do with sufficient experience. Unfortunately, your brain does not work like a piece of paper that holds written information indefinitely once itЂ™s been processed. You will forget information that you donЂ™t use regularly. WeЂ™ve all heard the saying ЂњUse it or lose it! Ђќ Well, with Forex Tester, you will be making more trading decisions than you would on any other method or tool. Our program is the quickest and most effective way to learn trading. Compare Forex Tester to Using an MT4 Demo Account. Backtesting with Forex Tester compared to MT4. In short, software for live trading was not made for backtesting, and thatЂ™s why it does not do this job well. MT4 is one of the best and most popular platforms for live and demo trading. It does include a feature for backtesting, which was added as a result of user demand.

However, it has significant flaws, which is no surprise because the developers have to focus on MTЂ™s main job: live trading. To close the gap, we developed Forex Tester because we wanted a better alternative for ourselves. Now weЂ™d like to share it with you. Currency trading is one of the most complicated ways to make money. To succeed in the forex market, a trader needs to develop the following 3 branches: Psychology Method Money management. If your forex training does not involve at least one of these important steps, you will definitely lose in the long term. Our trading simulator allows people to improve their knowledge and skills in all of these areas. Psychology . In terms of evolution, human beings have not adapted to accommodate trading. In other words, we have all been terrible traders from the very beginning because our DNA does not have the necessary features to go about it effectively. Even if you learned all the ins and outs of the market in theory, you will still not be ready to trade without a strong ability to control your mind and emotions.

The only way to really handle this area is to use a forex simulator. Trade simulation is way of better than demo and real accounts. With demo accounts, you will have to wait for ages to open a decent amount of trades. With live accounts, you will get a feel for the real market, but because you havenЂ™t mastered your emotions, you will keep trading illogically and lose your deposit very quickly. With our trading simulator, traders have the opportunity to be in an exciting atmosphere where they do not know how the market is going to move (as is the case with a live account). At the same time, traders can determine that information immediately Ђ“ a feature offered by neither demo accounts nor live accounts. In short, our backtesting software will supply you with all the market analysis tools you need to tame your inconsistent nature. Method . The abundance of trading strategies available on the Internet creates the false belief that you have everything you need.

However, if you try the appropriate forex trading simulator, you will immediately discover that this is a huge lie. The vast majority of these so-called profitable strategies that bloggers and pseudo-traders promote can give you a few profitable trades, but eventually they will create a significant drawdown in your deposit. While youЂ™re learning how to navigate the complex world of forex trading, the most important rule is this: DonЂ™t be too trusting. If youЂ™re too open to what others have to say, you risk compromising your 3 most powerful assets: time, money and self-esteem. If you choose not to backtest the strategies of questionable sources, eventually you will lose all of the money you have saved for trading. Consequently, without a form of forex backtesting software, you will spend hundreds or even thousands of hours learning about the forex market without yielding any positive results. Moreover, without Forex training software, you will end up frustrated and depressed. What normal people would want to spend their time, money and effort on this fruitless task? There are just 2 possibilities available for you now: Either choose the path of failure or buy what is probably the best trading simulator in existence and avoid losing anything. No one can guarantee that you will learn how to trade with our trading simulator, however. It all depends on your work ethic, dedication and ability to analyze your learning methods and trading actions.

It depends on whether you make the right decisions and stick with them. Money management. There are a lot of smart and disciplined traders who still cannot succeed in the forex market. The reason for this is that they lack an incredibly valuable pillar in their trading: They completely misunderstand the importance of money management. Currency trading requires traders to follow strict rules regarding how much they can afford to lose on a single trade and how many trades they can lose per month. If you neglect these fixed rules, or if you do not pay enough attention to them, you will never take your trading to the professional level. One can make amazing trading decisions, be fully in charge of his or her emotions and win most trades. But all of this success can be fruitless with a single trade that was opened where the trader did not stick to the basic principles of money management. Backtesting, however, allows traders to build their knowledge of these principles. In short, forex training is impossible without forex software Ђ“ especially without a trade simulator.

Start sharpening your money management skills today with the help of Forex Tester 3, the best trading simulator one can find. Correct Your Mistakes . Effective learning about forex trading includes the opportunity to correct your mistakes. Most traders do not understand that it is practically impossible to learn forex by using demo and live accounts. Demo accounts give you a chance to learn forex trading if you have dozens of years ahead of you, and live accounts make it impossible for you to fix your mistakes. You have already lost the trade (or range of trades), and the forex analysis will help you avoid making the same mistakes in future, but you simply cannot change the past. Forex simulators, in turn, can take you back in time so you can truly correct your mistakes immediately Ђ“ you can backtest your strategy as many times as you need. This amazing forex training software will help you fix your mistakes without affecting your real money. Detailed Statistics . Not only can you fix any mistakes youЂ™ve made, but you can also take your forex trading training to a higher level by using detailed statistics.

Our trade simulator has plenty of built-in parameters to evaluate your trading performance. With Forex Tester backtesting software, there is no need to simulate the market in the dark. Now, all the necessary components are included. ЂњNet and gross profit, Ђќ Ђњmaximum profit and loss trade, Ђќ Ђњmaximum drawdownЂќ and other values will improve your forex currency trading in a timely fashion. Manual Backtesting Tips for Metatrader 4 (MT4) If you’re into automatic Forex trading via Expert Advisors (EAs), that’s great! There are some advantages to building EAs to trade, like eliminating human error and being able to run years of backtesting in a couple of hours. EAs have their limitations, though. For instance, choosing good support and resistance levels to take your trading setups from is a pretty subjective process. How are you going to program an EA to only take trades from good supportresistance levels? Sometimes manual backtesting is the way to go. When it comes to manual backtesting, you have some different options. You can use a backtesting software, like Forex Tester, to help you keep track of your performance, and also to allow you to factor in the spread, broker rules, etc…. While that is a great training tool, and a faster process for those who can afford it, today I’m going to show you how to manually backtest a trading strategy in Metatrader 4 (MT4). How to Manually Backtest a Trading Strategy in Metatrader 4 (MT4) If you’re using a new installation of MT4, you may not have enough data to work with on your longer time periods, i. e., Daily, Weekly, and Monthly. If you need more chart history to work with, open your “History Center” ( F2 ) and download or import the required data for your currency pair.

Note: You can save time and hard drive space by only downloading the data that you need. For instance, if you are only going to be backtesting your trading system on the Daily charts, there is no point in downloading 1 Minute (M1) data. Next, you need to rewind your chart history in MT4, so make sure the green auto scroll button is not engaged (see the image below). Rewind the chart history by dragging with your mouse or using your < arrow key. Note: To start manually backtesting, you need to know a few, useful Metatrader 4 hotkeys. Mainly, F12 moves the chart forward by 1 candlestick at a time. To move the chart backward by 1 candlestick at a time, hit Shift+F12 . Once you’ve gone backward far enough in your chart history, simply hit F12 until a setup appears that meets the requirements the trading strategy that you are testing. In the example below, I used a morning star candlestick pattern as my entry signal. When manually backtesting a new trading strategy in MT4, some traders plot out their entry, stop loss, and take profit levels at each trading setup (like I did in the image above). However, this can be tedious – especially if you plan to take a hundred or more backtesting trades. price action faster way to backtest is to skip plotting or measuring anything at all unless you need to. Stick to your rules. If the price goes straight to your stop loss, then you obviously count that as a loss. If goes directly to your take profit, then you count that as a win. When the trade result is obvious, nothing else needs to be done. When the result is not so obvious, you can simply measure using the crosshair in MT4 (click the mouse wheel or Ctrl+F ). In the image above, you can see the same trade setup as before. This time, I simply measured the pips from my entry to my stop loss and then doubled that to get my take profit.

In either example, it’s easy to see that my trade did not quite hit a full take profit. However, by only measuring with the crosshair, I was able to determine the result much faster and move on to the next trade. Putting Your New Manual Backtesting Skills to Good Use. I suggest doing a couple hundred backtesting trades, for each new strategy, using these techniques. Determine your risk and write down the results of each trade, e. g., -2%, +4%, BE, etc…. To get an accurate representation of your trading strategy’s profitability, you need to do the math on a hypothetical trading account as well. Example: Starting with a hypothetical trading account of $1,000, a 2% loss brings the account to $980. After a 4% gain, the account is up to $1,019.2. The next trade was stopped out at break even (BE), resulting in no change. It’s important to track your profit and loss on each currency pair separately because most trading strategies experience, at least, some variance in performance between pairs. Many perform extremely well on certain pairs and extremely poorly on others. Some of these techniques may seem obvious to you but learning how to manually backtest a trading strategy in Metatrader 4 (MT4) can save you a lot of time and money down the road. Although tedious at times, going through these steps, thoroughly, will help you weed out the losing strategies, and build up your confidence in the winning strategies. Are you still looking for a profitable trading system ? I recently changed my main trading system after testing a new one for over a year.

Come see why I switched to Day Trading Forex Live. The Ultimate Guide to MT4 Backtesting. How to Perform Accurate Backtests in MT4 to Reach 99% Modelling Quality Using Free Tick Data and Real Variable Spread. MetaTrader 4 can reach 90% modelling quality at its best by default and it cannot incorporate real variable spread. But there's a better way to run backtests and you will learn it in this tutorial. Written by Autotrading. Academy. Why should you perform a highly accurate 99% quality backtest on every automated trading strategy (EA) A standard backtesting on MetaTrader 4 terminal using the data from the MT4 history center is usually good enough for Expert Advisors (EA) that are not scalping or pip hunting. However, if you’re dealing with a scalping EA or any EA that closes trades within 1-15 pips, even the smallest price feed differences might have a very large impact on the results. The problem here is that the MetaTrader terminal does not have access to the real tick data. It only has access to minute bar data in the best case. Because of this, MT4 generate “false” price ticks through a process of interpolation using the data for the smallest timeframe available. This is usually not so important to an Expert Advisor that uses stop loss and take profit targets of more than 100 pips, but in the case of scalping trading bots, your backtest will likely be completely misleading.

It is very important to backtest trading strategies (EA) using data of quality that is as high as possible. Every trader and programmer should learn how to backtest on MetaTrader 4. Manual Back-Testing; Practicing the Art of Trading. by James Stanley , Currency Strategist. Price action and Macro. Your Forecast Is Headed to Your Inbox. But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk. Your demo is preloaded with ?10,000 virtual funds , which you can use to trade over 10,000 live global markets. We'll email you login details shortly. You are subscribed to James Stanley.

You can manage you subscriptions by following the link in the footer of each email you will receive. An error occurred submitting your form. Please try again later. Trading, like many other things in life, can be improved upon with experience. This is often where new traders fail. Once realizing this fact, they look at a very simple negotiation. “Is learning to trade profitably worth my time?” Myself and many other traders would (or maybe more accurately ‘have’) answered an emphatic ‘YES!’ to that question, and embarked on a learning process to get our results to the point that we want. But not everybody would be in that boat. The difficult thing about experience when trading is the fact that that very same experience can cost us money. Over the years I’ve heard many flippantly claim ‘ah, that’s your tuition to the markets.’ And that may be the case. But there are other ways of earning experience in the age-old art of speculation. Grain and rice traders, the original creators of technical analysis, would employ an element of ‘paper trading,’ to track hypothetical profits or losses for the strategies that they are trading.

This is akin to demo trading today; a way that we can test our theories and strategies on the market without financial risk. Is this exactly the same as trading live, no, because there isn’t a liquidity provider on the other end of your trade performing ACTUAL execution; but it can allow me to test my strategies in a dynamic environment. The downside to demo trading or demo-testing a strategy is the fact that it may take a long time to get enough results to make a determination for my strategies consistency. If I want to test a strategy on a daily chart, it may take me an entire year just to place a few trades. And after those few trades, I’m not sure I’d be comfortable enough with the strategy to employ it live (after all, only a few trades were placed, how do I know whether this was an anomaly or not). This is where manual back-testing can come into play. This is a mannerism in which I can simulate a live market environment with dynamic prices. It’s important to note any back-tests that we perform, manual or automated, suffer from a singular draw-back; and that is the fact that past performance is not necessarily going to replicate itself in that manner going forward. But that’s not the point of the manual back-test. The reason I am doing the test is to train myself, using the tools of the strategy being tested, so that I may know how to most effectively employ the approach. I can do this on any timeframe, with any currency pair, and almost any strategy that I trade. Step 1: Dress the chart. The first step when manual back-testing is to dress our charts up with the indicators that we will use in the strategy which we are testing. For this illustration, I’m going to use an 89 period EMA and a 13 period CCI. After getting the chart dressed, we are ready to proceed. Created by James Stanley. Step 2: Take a step back in time.

After we have our chart dressed, we need to go to a previous period on the chart. The here is that I want to be unfamiliar with price action for the tested period. I want prices to be as close to the dynamic of a real market as possible. I want this to be unpredictable. To do this, I can simply click, and drag back in time to get to an earlier date on the chart. Created by James Stanley. Step 3: Walk forward in time. This feature is very beneficial to traders that do a lot of manual back-testing, but often unknown to many. This has to do with the ‘forward,’ and ‘backwards,’ arrows on your keyboard. If I wanted to go back 1 hour, I can simply press the ‘backwards-arrow key,’ one time. However, if I’m testing on a 4 hour chart – 1 press of the forward or backwards arrow keys will be equivalent to moving forward or backwards 4 hours at a time. This is an extremely convenient feature that can allow me to traverse a vast distance on the chart in a short period of time. At this point, I want to walk forward on the chart u ntil a I find a trade that meets my criteria. Once I do, I will pause, and we’re ready to move on to step 5. Step 4: Record the results.

This step can deviate between trader to trader based on style and mannerism of record-keeping. I urge all new traders or those new to manual back-testing to write each of these trades down; whether it be a journal, a spreadsheet, or a trading log. Some key information is of note here: Where would you place your stop? Where would you be looking to take profits? You can record all this information, as well as any other observations that you have made. After a few trades, you will have a few pieces of information you can use to then make the strategy more effective for your goals. Step 5: Rinse and Repeat. After we have found a hypothetical trade, at that point we can walk further forward in the future to get an idea for how it may have worked out. Once again, we can record these results in our journals. Then we can move on to the next trade. We can continue to do this until we feel the comfort, and the experience with the strategy to move on to the next step of testing. For some traders that’s testing with smaller balances, others take the leap directly into live markets, while other, such as myself – will then test the strategy on a demo account with live, dynamic pricing. --- Written by James B. Stanley.

To contact James Stanley, You can follow James on Twitter @JStanleyFX. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. How to backtest forex? How to backtest forex? This is a discussion on How to backtest forex? within the Forex forums, part of the Markets category; I want to backtest a strategy in Forex, but am not quite sure about how to go about it. There . I want to backtest a strategy in Forex, but am not quite sure about how to go about it. There are a number of ways that spring to mind. 1. Export data to Excel and analyse it by means of self written functions ( could be difficult to construct the correct functions, and may well be reinventing the wheel) 2. Get some charts for the last 3 months or so and visually mark exits and entries, and take a note of profitloss in Excel or 3. use some form of Platform Strategy tester such as the one in MT4 (which I guess means you need to be able to code your strategy into an expert, and understand how to write in MQL). Before I go down any of these routes, has anyone any pointersexperiences that I should bear in mind? or any preferences as to which route to take? and how far back would provide a representative sample?

Are there any handy references anywhere that explain in simple language how to write in the MT4 language? I've exported the data into Excel, but suspect that the pattern recognition functions are difficult to mimic. Which looks like it leaves options 2 or 3. Are there any good sources on the web for describing the use of the MT4 language? Forget backtesting in MT4. It is quite useless and will lead you to think that you will be a millionaire in weeks. Can't comment on other platforms like Tradestation or e-Signal. QUOTE=FishI want to backtest a strategy in Forex, but am not quite sure about how to go about it. There are a number of ways that spring to mind. Which ever method you use split the data in half, develop a strategy on one and test on the other half. Never ever develop and test on the same set of data. Never miss out the spread. There are fantastic results to be had if you do this and you will waste time. (Slippage on forex is not so bad as equities, I ignore it ). Keep the original data safe, get it from a good source. Ideally get the data from whoever you are going to trade with so you know their prices. Yahoo, Dukascopy and Oanda are all different.

Don't mess with it. Think about how you are going to apply this, if it is an api then learn to program in a language that will let you use that api and back test with the same code. you need at least a couple of hundreds trades to make any backtest trustworthy, depends on the time frame you trade, that could mean a few year's reliable historical data to find. then write a program that tests the trades for you. if you use MT4, make sure that you test with "open prices" only. then manually check every trade the program has done for you. then you should forward test your system for at least a couple of months. open 2 or 3 demo accounts with different brokers, let the program test trading your system for you. if you can't find any broker that supports your program, you have to do this manually, make sure you don't miss any trades. design a alarmnotification system that helps you to do this. for example, let your trading program test you or dial your mobile phone when there is a signal. if your tradig system is well designed, its signals and money management method should be programmable. a testing program could make backtsting a lot easier. but even if you use a program to backtest, you still have to manually check every trade.

find out the common features of your most profitable winning trades. that's the most important thing of backtesting. I don't know how to code an EA for MT4, but there's a great EA called VHands which allows you to replay market action! Basically, you download the data for the pair, in the timeframe you want, and then control the speed of action. You can pause the data and put indicators on the chart as usual. I've only been playing with it for a few weeks, but to download it and find out all the info you need, follow this link: This is the best way of backtesting any trading strategy, as you can play out market action as though were watching it for the first time. Takes away all the bias of looking at a completed chart and saying 'oh yeah, i'd have got in there and exited there'. I have just started to use a program called Forex Tester. If you search the web you will find it no problem. Cost for the professional package is $85, this also provides you with data to test. Check it out it may meet your needs. testing something on historical, static data may prove to yield slightly different results than initially expected, as to when you run your strategy in real time with moving prices. In my experiences you need to have realizations first of how the market really acts so you can identify commonalities in price behaviors, patterns and structure. you will only get this from putting in the relevant screen time. if you cant do this then i would suggest you get some sort of simulator where you can reply the markets action at your own time.

once you start having realizations you will gain a certain knowledge and understanding to identify specific setups which present themselves over and over and over again, from here, you are probably in the best position to test your ideas and strategies. identify a setup, test the setup on various periods of data, have a large enough sample size, run the strategy in real time, review the outcome, analyze the initial idea, implement your conclusions. then start this process all over again with your new found beliefs. this is how you should go about back testing, excel is good for statistical analysis, e. g finding out the average daily range of a currency pair, months that close higher on aggregate, etc. but the real testing is done when you run forwards. good luck. Forex Training Group. Have you ever been watching a currency pair and seen a familiar pattern but you were not sure how you should approach the trade? That feeling of uncertainty is one that thousands of traders feel every day. Now on the flip side, there are other traders who are more prepared and actually know what their next step should be instinctively. Many of these latter traders have spent countless hours studying and researching price patterns and movements through backtesting, and are able to execute their trade plan more effortlessly and with a higher level of confidence as a result.

So, what is forex backtesting? It’s the process of using a forex strategy tester based on historical price data. You can perform a manual forex backtest by printing out graphs of exchange rates, or looking back through your charts. In addition, you can use sophisticated complex algorithms that perform pattern recognition tasks. Whichever way you decide to backtest your forex strategies, the process itself will help you analyze situations that arise that have shown a propensity to provide a discernable edge in the market. Manual Backtesting Methods. A manual backtesting process can be timely and arduous, but it’s a true and tried method. But some of the drawbacks include, the lack of efficiency, and a greater likelihood for making an error. For example, if you are looking at a chart on a piece of paper, it might be difficult to determine if a currency pair has actually generated a lower low from the previous price point.

You can mitigate this issue by working manually online, but nevertheless, the process will still be time consuming. Manual backtesting of a trading strategy will allow you to gauge whether your trade idea might be viable. You can scroll through historical data, looking to see if your ideas will work. Once you have determined the variables that you want to test extensively, an automated process might be better suited and more efficient. The first step in a manual backtesting project is to find charting software that is easy and convenient to use. It’s best if you have five or ten years of data available, especially if you are looking to back test a daily, or weekly strategy. If you are attempting to find an intra-day strategy, it might be possible to use a couple of years of data to test your ideas. Intra-day time series can encompass a lot data, and finding reliable data in this this area can sometimes be challenging. For example, if you are analyzing minute data points, you will need to evaluate 1,440 points for every day, which is more than 1-million points over a 3-year period. Automated Backtesting Methods. There are a number of ways that you can backtest your ideas. You can use a forex simulator to test the data on your own, or you can use forex backtesting software that allows you to test basic to more sophisticated concepts. There are a plethora of free data providers including Google and Yahoo that will allow you to download historical data. Most of these data points will be daily or weekly open, high, low and close information. You can download this data into a spreadsheet such as excel, which can then be imported into your backtest platform.

If you are looking to test a strategy using intra-day data such as hourly, minute or tick data, you will likely need to purchase the data from a vendor. The benefits of purchasing the data from a vendor is that typically their data has already been filtered and cleaned, removing bad ticks from the time series. Any data that you download should be tested for accuracy. You want to make sure that there are no bad data points, especially if you are relying on high and low points to enter a trade. Bad data points can generate faulty results if the data has inaccurate highs or lows which are used to generate entry or exit points. You have to really understand your strategy and determine if the data will alter the results. For example, if you are looking at daily data, you don’t know if the high of the day occurred before or after the low of the day. This can create problem if your take profit and stop loss are near to your entry level, as your criteria could generate a signal, even if the movement of the price action did not happen in the required sequence. For example, if you enter a trade on the prior days close, and your stop loss and take profit levels are with the next day’s range, the result of the trade will depend on how your system looks at the sequence of events when evaluating stop loss and take profit levels, rather then what actually occurred. Using Back Testing Software. Another way to back test a strategy is to use computer backtesting. Many trading platforms today have trading wizards which allow the trader to create a trading model that utilizes technical indicators to establish a predefined set of rules. The criteria that is used is based on historical data points, allowing you to see if the strategy worked in the past. Mt4 strategy tester is an example of an automated backtest tool that has a built-in back testing system, in this case it is housed within the Metatrader platform.

You can use their language and graphical user interface, which an efficient way to build your system on their platform. You can also use their API (application program interface), and attempt to code a system that is customized. Below is a screenshot of Mt4 strategy tester: Creating an Automated Trading System. There are several ways that you can add a systematic approach to your trading arsenal. You can program the system yourself using your own ideas and strategies, or you can have someone else program an automated system using the strategies you have created. If your trading system uses tools that are common, such as moving averages, or other technical studies, the most efficient approach to back testing will be to find use a platform like MetaTrader or Ninjatrader to back test your strategies. Learning how to use a vendor’s interface with take some time, but these systems are geared to those who have little development experience. Standard strategies such as moving average crossovers, or overbought and oversold conditions are pre-programmed, into most back testing software packages, for your convenience. Most self-coded back testing systems are programmed in an automated trading platform that is geared toward generating a trading strategy that combines entry criteria with risk management. The criteria that is used for decision making is coded in the platform’s proprietary language. Most of these software packages have graphical user interfaces that allow you to simply click on specific variables and criteria in order to generate a strategy. If you decide that programming a system is beyond your technical capabilities or one which requires custom programming, there are freelancer programmers for hire that will help you code a system. Hiring a Freelance Programmer.

There are many skilled programmers that you can hire on a freelance basis that understand the nuance of specific trading platforms. You can work with these individuals, and have them show you the results of each data series that they run with your provided strategy. But there can be some downsides to using an outside programmer. Some of the drawbacks include the additional cost you will incur from having someone else program your strategy. This includes the initial system programming, as well as the subsequent debugging process. Since you will likely need to tweak your strategy, you should try to determine how you will pay the programmer each time you ask for a change. You will have to decide whether a flat fee or hourly fee arrangement should be used. Backtesting provides you with a multitude of benefits. You will be able to determine if your strategy meets certain risk criteria and is likely to work in different market environments. Most importantly, you have the ability to see if the methodology shows a positive historical result, prior to risking real capital.

This will not guarantee profitable trading results in the future, but can help reduce the probability of potential losses. One of the benefits of programming a strategy yourself is that by doing so, you will gain intimate knowledge of how the system works and how robust your back testing results are. This will provide you more confidence when trading the system live. As we pointed out earlier, the system that you develop, is only as good as the data that you use. If the data is faulty, you will have errors in your results. Bad quotes or prints, can generate false trading signals. If you download your own data, from a free software provider, you should go through the data to see if there are any prices that look suspicious. While closing values are usually consistent, high and low values can be choppy and lead to faulty results. Purchasing a Trading System. There are dozens of commercial trading systems that are available in the market. Many have been back tested by their developers and some will advertise the spectacular returns of their system. Regarding commercially available trading systems, you should always work on the premise that if a claim is too good to be true, it’s usually too good to be true. Many times these “spectacular” systems are over optimized and curve fitted so they appear to be highly profitably based on historical data, but tend to fall apart when traded in real time. There are reviews of trading systems that you can find throughout the internet, which describe how various systems perform in real time.

One reputable resource for reviewing trading systems is Futures Truth. If you cannot find a review, make sure you test the trading system on a demo account before you employ the strategy using real capital. Issues and Pitfalls with Back Testing. As mentioned, one of the issues with back testing, and therefore purchasing a trading strategy that only shows historical results, is that there are techniques that can be used to make the strategy look good on paper but fail in real-time. By fitting the curve, or over optimizing, you can produce a system that has been back tested and looks very good over a specific historical period. A system designer can slightly alter the criteria that is used to achieve outstanding performance. For example, a designer might back test a trend following strategy optimizing a moving average crossover system for a period of 2-years. Once they find the result that looks good, they test to see if the strategy works over a longer period. Most of the time, the results will be fair at best, over the long term, but they will not tell you this when you purchase your system. You could find out only later than the moving average crossover strategy that returned 100 % over the past 2-years, loses 20 % when you test it over the past 10-years.

What you want to be able to do is see how that system performs in a forward test or better yet in a real-time trading environment. In addition, many novice traders sometimes assume that a trading system should have a very high percentage of winning trades. With this in mind, an unscrupulous designer can create parameters that can be adjusted to create an amazing win rate of over 90% for example. This may seem attractive to the untrained eye, but in the vast majority of cases, this type of system will eventually blow up, because the losses will be many multiples of any winning trade the system generates. Removing Negative Emotions from Your Trading. A system that is backtested helps remove some of the human emotion from a trade. Many investors are calmed by the notion that a trade has worked well in the past. This is especially helpful when a trade is moving against you and you are losing money. You are more likely to hold on and let the trade play out, as opposed to cutting bait, assuming that is what your system calls for doing. An important metric that a backtested trading strategy or system will provide you with is the maximum drawdown. This calculation tells you the largest peak to trough decline in a portfolio. When you back test your strategy you should calculate the maximum drawdown to see the largest drop that the strategy has experienced. Past calculations of maximum drawdown will give you an idea of what you can expect if you experience an adverse market condition, and will allow you to better plan on this experience as the potential worst case scenario. But in most cases, keep in mind, that your worst drawdown is ahead of you not behind you. If you backtested a system for 10 years where you are investing 10K and your maximum drawdown was $1,500 which is 15%, then you would typically not expect to lose more than 15-20% on your system during the years to follow. If you back tested your system in multiple market environments, this type of analysis will help you determine how carefully you need to monitor your system, when a position starts moving against you in a way that was unexpected.

If your system has a new maximum drawdown that is 2-times the prior maximum drawdown, you may need to re-evaluate the backtest history or adjust your risk parameters. While negatively charged emotions can be somewhat minimized when you begin to trade a system that has been back tested, it can still play a role in your decision processes. You need to give a new system the appropriate amount of time to determine if it works. Given the results of your system, you should plan in advance what you are expecting, and what you think you should do if the results in real-time are not as you planned. You should also spend time forward testing your strategy using a practice account as opposed to real capital. Do this for a few weeks or months and make sure that the backtested system is generating the returns you expected before attempting to use real capital with your strategy. If you developed the system yourself, and backtested it, you might become attached to your strategy and fail to pull the plug on it even if it does not perform as planned. Make sure you stick to a game plan and have benchmarks that describe your goals. Backtesting is an excellent was to determine if a trading strategy has the potential to work in the future. Keep in mind, that just because a system’s past results are positive, does not necessarily mean your strategy will work in the future.

But it should provide you more confidence in your execution. And that is the best that we as traders can hope for. We are not executing on certainty, we are executing on probabilities. Make sure the data you use for the backtest is clean, and does not have false highs and lows. Be particularly careful if you are trading a system that relies on intra-day data. Calculate the maximum drawdown so you understand the most you could expect lose from peak to trough, and be sure to test your strategy with demo money before you decide to risk real capital.



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