Methods for testing Forex strategies: choosing the best option.
Today, on many websites dedicated to forex topics, you can find dozens, if not hundreds, of different trading strategies.
Their vast number reflects the worldview of thousands of traders who poured their hearts and souls into creating their approach, not to mention the programmers who implemented these ideas.
However, it is a well-known fact that the market is volatile, so almost any trading tactic eventually becomes outdated and begins to bring losses instead of profits.
This is why many novice traders, having adopted someone else's strategy, tend to lose money and become forever disillusioned with the possibility of making money in the Forex market.
In this article, we'll explore ways to test Forex strategies, including both paid and free methods.
Methods of testing strategies
There are several different methods and approaches for testing trading strategies. However, these methods can be roughly divided into free, partially free, and paid. Therefore, since traders are typically the dream of people who are financially strapped, the article will begin with the free methods, followed by the paid ones.
Free Strategy Testing Methods
The most common and free testing method, used by almost everyone, is historical visualization. This method involves scrolling through a historical chart and observing how a particular strategy performs.
This method is used by almost all professionals, as it's primarily designed for short-term strategy optimization if you detect any changes in returns. In fact, in most cases, this approach is used to adjust indicator parameters to a volatile market.
If you want to test using visualization, you'll need a pen and notebook to record the results of potential trades. The downside is that you only see completed candlesticks, so you can't see how the strategy behaves within the bar, specifically during its formation.
The second free testing method is to test directly in the strategy tester. Recently, the developers of the MT4 trading terminal added the ability to test indicators in visualization mode.
Thus, when this mode is enabled, quotes will flow from left to right, as in real trading. To use this method, launch the strategy tester, then change the tab from Expert Advisors to Indicators, and select a specific indicator.
It's crucial to specify the testing period and check the visualization box. Once the chart appears, you can plot any data on it indicatorsThe only drawback to this method is the inability to open trades.
The third free method for testing strategies is live trading on a demo or cent account. This approach is very labor-intensive and time-consuming, but it is the most effective.
The point is that when trading with real money (even on a cent account), you'll experience a psychological strain that you don't feel during historical testing. Also, trading on a demo account develops your intuition and tolerance, as 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, more simply put, advisersThe essence of the paid method is to automate your strategy, namely, implement it in the form of an advisor.
To do this, you'll need to find a programmer and clearly outline on paper what the strategy looks like, what parameters you want to adjust in the future, and the logic of your future robot. Since the main goal is to test the strategy, be sure to tell the programmer that the robot is needed for testing in a strategy tester.
If you specify this upfront, the development will cost much less, and if the strategy meets your expectations, you will only pay a small additional fee to the programmer to modify it for trading on a real account.
When it comes to semi-free testing methods, you can use either dedicated paid testing programs (Forex Tester 2) or cracked versions. It's important to understand that cracked versions are typically limited in functionality, and using such programs without paying for a key leads to the demise of such projects.
In conclusion, I'd like to note that strategy testing is the most important tool in finding working algorithms capable of generating profit. I'd also like to emphasize the importance of testing strategies on cent account, since this approach is the closest to real trading.
