Strategies’ backtesting is what differentiates amateurs from professional traders

Each trader requires three crucial factors in order to succeed on the Forex market.

First Published: e-Forex Magazine 72 / Sponsored Statement / July, 2016

Each trader requires three crucial factors in order to succeed on the Forex market:

1. Logical set of rules (trading strategy)
2. Enormous self-discipline that helps them to stick to the rules
3. Statistical proof of a strategy’s profitability

People who traded 10 years ago are no different from those of us who trade now. Even though additional information, indicators and trading methods have come into existence, the human being has not been changed at all. We come to similar conclusions while analyzing the market, and we experience the same emotions that result in trades.

That is why the only thing that matters in the Forex market is statistics. 

Algorithm for discovering a strategy’s profitability

•  Open 500 orders with the same lot size, stop loss, take profit for each single trade as well as the same circumstances for the trade entry
•  Earn 2,000 pips of profit out of these trades 
•  There is a huge probability that any other randomly chosen group of 500 orders will provide you with almost the same result.

If your strategy provides you with two entries per day every single day, then to open 500 trades you will need:

500 trades / (2 trades * 5 days a week) = 50 weeks, which is almost a year. 

Moreover, if it turns out that the strategy you’ve been using for 11 and a half months is a losing one, then you need to start everything all over again. But what if you could compress all of your efforts during the above-mentioned period into 3 hours? In this case, you could backtest an entire trading system in just one evening! 

Testing strategies on historical data

Imagine software where you could upload real quotes from any broker and any currency pair. Assuming that you have the data for the EUR/USD currency pair from January 2001 by January 2015, you could set any date within the existing data range and jump to that date. 

Nov 10 2003, 7pm

You will see all the data that occurred before the picked date, however everything to the right from November 10th 2003 will be a mystery to you.

Once the data is prepared, it is time to begin the testing itself. 

•  Make an assumption based on your trading strategy
•  Open a trade in the simulator with a stop loss and a take profit (if your strategy requires it) without risking any real money
•  Skip hours of waiting, rewind the data and in just a few seconds see how the trade is closed or close it manually
•  Test 500 trades in just one evening

All of this is possible with Forex Tester, the software that deals with pre-recorded historical data. You can go to any point in time and start testing the strategy as if you’re in real time.

Instead of waiting for a year, you can test your strategy in 2-5 hours depending on its complexity. The software speeds up your learning of Forex by at least 2,000 times. Moreover, the higher time frame you use, the more time you ultimately save.

Useful features of Forex Tester

1. Statistics
•  Software will automatically generate statistics of your strategy’s performance 
•  All the trades can be expressed as a special chart (Profit chart) for finding balance, equity, margin and drawdown changes. This will allow you to see a visual representation of your strategy’s performance and potential risks

2. Free data
•  15 years of free historical data on 16 currency pairs, silver and gold
•  Adjust spreads, leverage, and swaps to match the settings of your broker

Take profit, Buy, Stop Loss

3. Multiple testing
•  Test multicurrency and multi-timeframe strategies (open many charts at the same time as you do in a real trading terminal)
•  Save time testing an unlimited number of symbols
•  Backtest several strategies at the same time
4. Instruments
•  A huge amount of graphical tools for technical analysis
•  45 of the most common indicators and oscillators

5. Save time even more
•  Use templates for faster customization
•  Test on weekends when the market is closed
•  Use Expert Advisers to speed up your testing

Download Forex Tester for free

To download the free trial of Forex Tester you need to visit this page: https://www.forextester.com/special/e-forex.