Statistics do not display a complete picture of the effectiveness of the Forex trading system without information on the number of transactions. A relevant sample must contain such a number of transactions, which will be enough to determine the sustainability of the strategy, its quick adaptation to various kinds of changes, etc. And not only the number of transactions determines the effectiveness of the system, but also a temporary area. For example, an intraday strategy tested on an annual interval with 120 trades will more accurately display actual results than a scalping tactic with 300 trades on an interval of 1 month.
How to evaluate the relevance of the sample for the Forex trading system
The answer: “The more the better” is not accurate and correct from the point of view of mathematical statistics. For long-term strategies on weekly charts, it is enough to test for histories of 5-6 years with entry into the market 30-50 times, for scalping, pipsing or averaging the time period can be taken smaller, but with a large number of transactions. Sampling accuracy can be improved by multi-currency testing, but:
- the same strategy can give different results on instruments with different liquidity;
- Most platforms do not have multi-currency testing functionality.
This figure shows an example of the dependence of the standard statistical error on the volume of open positions. From the graph it can be seen that saturation occurs after the section 100-200 of transactions. If before this section, to reduce the error by 5%, it was enough to increase the sample by 20-50 transactions, then after this section, to reduce the error by another 5%, the sample needs to be increased by 200-300 transactions.
And one more example of the need to extend the sample is well illustrated by the following image:
It can be seen that with an equal number of open positions in the first case, both systems seem to be stable, but with an increase in the number of transactions, the second Forex trading system remained almost unchanged, and the first shows instability.
Conclusion. The optimal testing period for the “time” parameter is from 1 year (3-5 years), and by the “number of transactions” – over 150-200 transactions. The most effective way to check the Forex trading system is multicurrency testing. If, with a slight adjustment of the equity indicator settings, it does not change much, the strategy can be called sustainable. Assessment of the equity and optimization of the indicator settings is carried out only in conjunction with the analysis of parameters for evaluating trading systems. If you have any questions, ask them to our analysts in the comments after the article!