How do you backtest your trading system

Hi All,

I was wondering how you guys backtest your trading system before you are going to use it with real money?
I’m busy developing my own trading system but i haven’t found a quick way to backtest it.



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What do you mean by developing your trading system? On which platform/language?
If you use something like metatrader, it includes backtesting.
Otherwise if you are developing something from scratch, you will need to implement the backtesting on your own. And i can assure you is not a simple task, first problem is to find reliable and cheap/free historic tick data.

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all I do is go backwards on a chart and watch for patterns that work. If their is a trading system that I want to try, I move my chart back a few months and see if the system gives correct signals.

I also try different time-frames and different pairs because not all systems work on the all pairs or time-frames.

That is pretty much how I “Backtest” my trading system it may not be the right way but it works for me.

Hi, this is a tricky one as I think there are lots of ways to do it. My personal preference is to (once I have decided on a strategy)

  1. Test it visually in something like metatrader. I will make marks on the chart to flag entries and exits etc and do a quick check on different pairs/timeframes to see if it is viable (this saves lots of time as automating is very time consuming)

  2. Once I find something that looks interesting it gets more complicated. I will backtest it via metatrader (or custom development in .NET) The problem is not normally the strategy, 9/10 times it is the money management that goes with it. So I normally focus on that a lot more.

hope this helps, good luck.

First, well done on appreciating how essential this is: huge numbers of aspiring traders spend months or even years investigating forex-trading, sustaining gradually increasing losses, without ever actually having a system that has a genuine edge (positive net expectation), largely because they haven’t methodically and systematically backtested what they’re developing, and imagine that money-management will somehow, eventually, produce profits for them.

For methodical backtesting, you need two things: software with which to backtest, and data to backtest. The two can be acquired either separately or together.

Like all the other range of services one can need, to set up this kind of business, there’s a huge range of each available for sale online, and even a limited range of free options for both.

And all the usual considerations apply, as one would expect: careful research pays; it pays to beware of “information” offered by people promoting goods/services; and so on.

Realistically, much depends on the extent to which one’s willing to shell out a bit of money for the sake of speed and convenience.

If you’re willing to spend a little bit on this, and learn to do the job efficiently and effectively, I recommend looking at “Forex Tester 2” (available here: Forex Tester - professional forex training software, simulator and backtester). It’s a good way of getting the software and reliable data from one port of call (and even tick-data is available), and both in potential loss-avoidance terms, and in terms of time saved, it can pay for itself very quickly.

Don’t forget that some forward-testing (preferably on a demo account), after developing something that has a consistent backtested edge, is also very worthwhile.

Good luck!

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