Hey I definitely back test my idea; usually around 10 years or more (~ 2010 - 2012).
Then I test different pairs and favorite the ones that are highly successful.
Then I write my strategy out to make sure I understand everything.
After comes the execution: I’ve never paper traded because I want the real feelings, emotions etc. I lower my risk substantially (.25%) and go live with the system for a year. Usually I have to tweak the system a bit because back testing shows the set lagging indicators which doesn’t happen real time.
Then it’s just patience, consistency and minimal emotion (zero if possible).
To answer your question simply, backtesting is great. It taught me how to trade, how to read charts and gave me my own style of trading: a way that I see the markets and can profit off of it. My advice is don’t skip this.
I couldn’t have said it better myself. THis is exactly what I do. I might look back over the previous month or two (depending on the timeframe I’m trading), but otherwise, that’s it. If I eyeball charts and a strategy doesn’t look like it has any sort of good potential (eg, at least 50% win rate with high RR wins), then I don’t bother. If a system also takes too much effort to figure out when I’m eyeballing the charts trying to see if it’s worth-while, I also ditch it.
When I’m in front of the charts or coding something, I want it to be easy.
And for the most part, I won’t back test anything that has more than 5 conditions for entries – that says it’s too complicated and has too many moving parts.
Can somebody provide a full walk through and explanation of thought process of a back tested strategy please? It might be just me but i can see lots of views and opinions but still failing to see and understand what somebody has done and how
Back-testing is a useful filter. If the back-test is positive there’s no guarantee that the strategy will perform just as well in real trading: but if the back-test is negative, most people would immediately walk away from it.
Its a useful rehearsal for dealing with eventualities during real trading. It can allow anomalies and ambiguities in the strategy rules to be resolved.
To be honest I wouldn’t even bother back-testing something which does not contain sound basic trading principles.
Thanks Tommor. So can you give an example of what “strategy you checked” via back testing - btw i’m not looking for the secrete ingredient to the noodle soup (or is it actually that lol) or anything which might give away your edge, even though it sounds like i am.
For example, i’ve heard people say back test a strategy for placing trades every time 5 day MA moves over 20 day MA BUT surely it’s got to be more complex that just that
The more i think about it, all trading decisions would have to factor in current price and market situation - hence why i don’t see how someone can make use of back testing or what kind of strategy would have any value.
There’s plenty of justification for why someone should back test but nothing solid in terms of a working example.
The last back-testing I did was just a simple visual check for a very simple strategy I was mentioning on another thread - I simply looked back for 3mths on D1 time-frame for the 28 major pairs to get a win rate for the strategy and see if I could pinpoint which pairs or currencies it worked well or badly on. In the past I have done more thorough back-testing plus demo trading but my strategies these days tend to be more simple than what i used to do.
For me, I think the most advantage Back testing brings Is it helps in building your psychology in regards to your strategy. It gives you confidence when the strategy being tested comes out net positive. But I don’t think win rate is always something to rely on only, (R/R) and no of times such setups come up should be accounted too. That’s the essence of backtesting.
Hi there!
First of all I want to say you that obviously a strategy can’t work on all pairs and it is crystal clear that your strategy has to math your balance, your personality and other things (just basics!)
I think It’s important to avoid over-optimizing a trading strategy based on backtesting results. Over-optimization occurs when you tweak your strategy to fit the historical data, resulting in a strategy that is not robust enough to perform well in live trading.
I certainly do back testing for both new and old strategies. It’s like replaying a football match, except I’m both the player and coach. It allows me to spot strengths and weaknesses, helping refine my strategies. Even if a plan isn’t performing well currently, back testing can offer insights for improvements. However, it’s essential to remember that past performance doesn’t guarantee future results. But it certainly helps paint a clearer picture and builds confidence. How about others here?
Absolutely, I’ve been backtesting hours and days in a row, manually in tradingview. To my opinion it’s impossible to trade forex without having it backtested yourself for the below reasons:
To understand if your strategy works in the first place, and gives the results expected (R:R / win ratio)
To finetune your strategy (adjust stoplosses, optimize targets, change parameters or rules in your strategy, etc.)
To gain confidence that your strategy works so that it’s easier to control your emotions during live trading
Back testing is a crucial strategy for managing risk in the forex since it enables traders to raise their chances of profitability while lowering their risk of losses. Normally, I back-test my trading techniques to assess their effectiveness and identify any potential weakness or market flows.
Backtesting is essential in forex trading because it allows traders to evaluate the performance and potential viability of their trading strategies. By using historical data to simulate trades, traders can assess how their strategies would have performed in the past. Backtesting helps identify strengths and weaknesses, refine trading rules, optimize parameters, and gain confidence in the strategy before risking real capital in live trading. It is a valuable tool for making informed decisions and improving the chances of success in the forex market.
