Tell me, by what criteria do you evaluate the effectiveness of the strategy? After all, to understand whether a tactic is right for you or not (there are hundreds, if not thousands, of them on the Internet), it is not enough just profitability. And the complexity of tactics is certainly not an indicator, all the more depends on the broker and the platform.
Criteria for evaluating the trading system:
- the ratio of profit and risk. The classic rule “the greater the profit, the greater the risk” rarely acts. There are examples of trading advisors, where at a yield of 30% the maximum drawdown can reach up to 80-85%. They are popular with gambling traders. The ratio is estimated using the Sharpe method. If the risks are unreasonable, the strategy does not apply;
- the ratio of maximum profit and maximum loss;
- the ratio of a series of profitable and losing trades.
Read more about the criteria in this article. Testing Forex strategies gives you the opportunity to get the basic results of the above criteria, the deviation from which will be a signal to stop them. Testing also provides a comparative analysis of the use of the same system on different assets, helps to determine at what points the strategy works best, and when it should be turned off.
Forex Strategy Testing
Methods for testing strategies can be divided into three groups:
- visual testing;
- Testing Strategy Evaluation;
- testing on a trading account.
- Visual testing. This is an introductory method that allows you to create an overall picture. A trader, after uploading quotes, evaluates historical data, compares the frequency and accuracy of signals, down to how many profit points each entry into the market has brought. Based on the data, the trader forms a risk management strategy, determining the length of stops and take profit. Already at this stage, you can see the ineffectiveness of the strategy, although it is not worth rushing. For example, visually it may seem that 2/3 of the positions are unprofitable. But if the remaining 1/3 positions yields more profit several times, then this can be attributed to the specifics of the strategy.
The benefits of visual testing:
- the ability to compare a chart with fundamental factors and assess their impact;
- an opportunity to evaluate the effectiveness of signals at different moments of the market: flat, bursts, force majeure, etc .;
- the ability to compare the behavior of quotes in different time periods.
Estimated period of at least 2 years. Yes, it’s long, but worth it.
- Evaluation of strategies in the tester. MT4 has its own built-in tester, where bektest is formed. A strategy can only be evaluated when it turns into an advisor, that is, it requires writing code. There are paid services of programmers, but there is no guarantee that the written advisor will work. You can test the Expert Advisor right away, or you can create it in the System Creator program. The second problem – you need an archive of quotations for 2-5 years. But it is difficult to find him. In this case, it is better to download several archives, including on independent resources. Bektest allows you to evaluate statistics and analyze the effectiveness of the strategy in a mathematical way.
- Testing Forex trading strategies on a trading account. The final stage, which is mandatory, but is carried out exclusively after the first two methods. The strategy is launched on the account for a certain period of time (for each strategy it is individual, but it is desirable that there be at least 200-300 transactions). It is believed that testing should be carried out on a demo account, since the difference is only in psychological perception. This is not true. Real accounts and demos differ greatly in the execution of orders: speed, slippage, redrawing, etc. Therefore, we use cent accounts to test Forex strategies.
Suppose all these three methods do not guarantee that the output will be a reliable tool for profit, but a systematic approach to trading reduces the risks and maintains discipline. And without this success can not be achieved. And remember that any strategy from time to time requires re-optimization, that is, re-passing testing. Good luck to you!