How to backtest forex strategy?
Most trading platforms, including the common MT4 and MT5 platforms, are equipped with a strategy back tester as one of their main tools. To test a strategy on MT4 or MT5, you can go first to the toolbar and click on view, then strategy tester. This will show you the strategy tester with all of its options, and it enables you to test both expert advisors (automated strategies) and indicators.
Once you choose the “Expert Advisor” option, you will be able to select the EA you want to test. If your EA does not appear in the list, then you need to add it to your Metatrader platform first. After choosing your selected EA, you can select the pair (symbol) you want to test it on.
Then you choose the testing model, which determines the level of accuracy of the test. More accurate tests give more realistic results. The best model is the “every tick” model as it gathers more data, however, testing based on this model will take more time depending on how fast your computer is. After that, you select the time period (1h, 4h, etc.), and the time frame and other details, including the possibility for optimization of strategy. Then you run the test.
After the test is completed, the platform will produce a test report showing the results of your strategy. The results will include the number of winning trades, the number of losing trades, your expected equity curve and other details. If the results are not satisfactory, you can always go back and change some of the details about the strategy test or the EA. Moreover, it is important to note that the actual results will likely vary when implementing the strategy on a real account, as a result of potential execution problems (such as slippage and high spreads).
Once you choose the “Expert Advisor” option, you will be able to select the EA you want to test. If your EA does not appear in the list, then you need to add it to your Metatrader platform first. After choosing your selected EA, you can select the pair (symbol) you want to test it on.
Then you choose the testing model, which determines the level of accuracy of the test. More accurate tests give more realistic results. The best model is the “every tick” model as it gathers more data, however, testing based on this model will take more time depending on how fast your computer is. After that, you select the time period (1h, 4h, etc.), and the time frame and other details, including the possibility for optimization of strategy. Then you run the test.
After the test is completed, the platform will produce a test report showing the results of your strategy. The results will include the number of winning trades, the number of losing trades, your expected equity curve and other details. If the results are not satisfactory, you can always go back and change some of the details about the strategy test or the EA. Moreover, it is important to note that the actual results will likely vary when implementing the strategy on a real account, as a result of potential execution problems (such as slippage and high spreads).