Methods of testing Forex strategies, choosing the best option.
Today, on the Internet on many sites dedicated to Forex topics, you can find dozens, or even hundreds of different trading strategies.
A huge number of them reflect the worldview of thousands of traders who put their heart and soul into creating their approach, not to mention the programmers who implemented these ideas.
However, everyone is quite aware of the fact that the market is volatile, so almost any trading tactic becomes outdated over time and begins to bring losses instead of profits.
This is why many novice traders, having adopted someone else’s strategy, as a rule, lose money and are forever disappointed in the opportunity to make money on the Forex market.
Actually, in this article we will try to consider ways to test Forex strategies, as well as paid and free methods.
Methods for testing strategies
There are several different methods and approaches for testing trading strategies. However, these methods can be conditionally divided into free, partially free and paid. So, since in most cases people who, as a rule, have financial difficulties, dream of becoming traders, the beginning of the article will be devoted to free methods, and then paid ones.
Free methods for testing strategies
The most common and free testing method, which almost everyone uses, is visualization over a historical period. The visualization method is to flip through the chart on history and consider how this or that strategy behaves.
This method is used by almost all professionals, since it is primarily designed for short-term optimization of the strategy if you find any changes in profitability. Actually, in most cases, this approach is used to adjust the indicator parameters to a volatile market.
In case you want to do visualization testing, you will need a pen and a notepad where you will write down the results of possible trades. If we talk about disadvantages, then you see formed candles, so you cannot know how the strategy behaves inside the bar, namely in the process of its formation.
The second free testing method is to test directly in the strategy tester. Quite recently, the developers of the MT4 trading terminal made it possible to test indicators in visualization mode.
Thus, when this mode is enabled, quotes will go from left to right, as in real trading. In order to use this method, launch the strategy tester, then change the tab from advisors to indicators and select a specific indicator.
It is very important to specify the testing period and check the visualization box. After the graph appears, you can apply any indicators. Among the disadvantages of this method, only one can be highlighted - the inability to open transactions.
The third free method of testing strategies is real trading on a demo or cent account. This approach is very labor-intensive and time-consuming, however, it is the most effective.
The fact is that in the process of trading with real money (even if it’s a cent account), you will begin to experience psychological stress that you don’t feel during testing over a historical period. Also, trading on a demo account develops intuition and tolerance in you, since real trading is very different from testing in a tester.
Paid and semi-free methods
Paid testing methods are primarily useful for traders who want to develop automated strategies or, in simpler terms, advisors. The essence of the paid method is to automate your strategy, namely to implement it in the form of an advisor.
To do this, you will need to find a programmer and clearly outline on paper what the strategy looks like, what parameters you want to configure in the future, and the very logic of your future robot. Since the main goal is to test the strategy, be sure to indicate to the programmer that the robot is needed for testing in the strategy tester.
If you indicate this right away, then the development will cost much less, and if the strategy meets your expectations, then you will only pay a small amount to the programmer to modify it for trading on a real account.
If we talk about semi-free testing methods, then you can use either special paid programs for testing (Forex Tester 2) or their hacked versions. It is worth understanding that hacked versions, as a rule, are limited in functionality, and the use of such programs without paying for a key leads to the death of such projects.
In conclusion, I would like to note that strategy testing is the most important tool in finding working algorithms that can generate profit. I would also like to focus on testing strategies on cent account, since this approach is as close as possible to real trading.