Hi, Can somebody please explain the concept of back testing in forex trading and provide some examples?
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Backtesting can be done in a lot of ways, but step 1 is to define a strategy.
For example, you can have an idea like: I Will go short when in the 1 hour chart, the 20 MA crosses below the 50 MA, and RSI is above 80. My stop Will be 20 pips, and my TP 60 pips
Now, in order to see if this idea has worked in the past, and probably in the future, you need to “backtest” this idea.
This can be as simple as looking back in your charts, and see for example the last 50 times you could execute this strategy, and if It was profitable or not.
Backtesting can Also be more complicated, for example if you develope Code for a trading bot that executed this strategy in the past, and even optimize the strategy, so It tries other MA, instead of 20 and 50 MA, to see which ones have worked better, and Also It could find the optimal SL and TP values
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In order to make backtesting (easier?) you would need to obtain historically prices and export to some like excel and analyse? Do standard trading platforms provide this functionality or is it a paid for service?
Also, would an idea like the one you suggested (based on going short on 1hr chart) actually apply / be relevant to historical prices? Isn’t the market (and prices ultimately) changing so often, with so may other factors to take into consideration, that the rationale behind applying a particular trade will only be applicable at that time?
Backtesting in forex refers to the process of testing a trading strategy using historical data to determine its potential profitability. This is done by applying the strategy to past market data and comparing the results to actual historical performance. Backtesting can help traders identify potential issues with a strategy and make adjustments before risking real money in the market. However, it’s important to keep in mind that past performance is not always indicative of future results, and that real-world market conditions can differ significantly from historical data. Additionally, backtesting can be affected by survivorship bias and lookahead bias.
in order to my trading experience i think backtesting is the major process to test your trading approach and to see the performance how it works. just great
Metatrader… the platform most Forex brokers provide has a backtest functionality… specially Metatrader 5
Of course markets are allways changing and a succesful backtest does not guarantee future results, but better to get in the market with a strategy that has worked in the past, rather than gambling or having no strategy at all.
thanks for your nice detail , got some fine lines . happy trading
Back testing will help you to have a pure view of the market. So, take your decision through back testing.
haha Is this how you talk?
Where is this from?
Back testing will help you understand the market situation and take actions about trading sooner or later.
Back testing should be done frequently to have an idea about the past situation. It will help you in technical analysis.