Backtesting

I am a newbie and all throughout my lessons regarding about Forex, i encountered the word Backtesting.. what does it mean and it's importance and how it will gonna work? Your insights would be highly appreciated..Thanks..

This refers to "backtest" a determined methodology of trading. After you develop your method of trading (based on price action or indicators) you should go "back in time" and test your method to see how it would perform.

You should do this to see if your method really works and how much drawdown is expected for your given method so that if it happens again in the future you take it calmly and knowing that it is expected instead of freaking out and wondering if your system has stopped working all of a sudden.

If you use metatrader I've heard that you can backtest simply by going back in time with your charts and then pressing F12 to see the candles showing up one by one. With the information given to you by this method you can say, candle by candle which action you are going to take "buy/sell/hold/wait". Write these down and also the stop loss order that you will couple with any order and see how it would perform.

Okay.. well, you just said enough for me to understand it i guess.. though i am still trying grasp it but it already gave me the idea.. Thank you Branco for the insights..

First you develop a trading strategy. For instance, "buy GBPUSD everyday at 8:00 am sharp, SL 50, TP 50 pips, risk 5% of the account".

With the backtest you will verify how many times it was profitable and how many it wasn't it in the past understanding that this win/loss ratio will be the same in the future.

P.S. This is just a example, not a strategy I use or advise.

Okay.. Thank you for your example! I appreciate it.. that gives me a view on how Backtesting works..

When you figure out a strategy and want to test it, Forex tester dot com is an excellent tool to use. It give you the ability to speed up time so if your strategy is in the hour time frames, you don't have to wait an hour per per bar.

It looks like the metatrader platform and most pairs can be downloaded. I believe 7 years of past data are provided.

I have found it of value.

Thanks,
Brett

Thank you pip_hunter.. for your suggestion..

Anytime. I have found it to be very valuable myself. Since most of my trading is in hour realm, I make each bar last about 10-20 seconds.
So when I am actually trading, I can see things start to develope and know with a high percentage what is going to happen and be ready for when price plays out.

If you don't have any systems or ideas there are some good ones here. I welcome anybody coming across this page to chime in.

I have found the cornflower method to be a nice one.
Also, if you want to invest in yourself some, I suggest contacting Rob Booker. He is a down to earth guy and will teach you good things and he really really stresses money management.

His courses and what he teaches is not static and continues to grow.

Anyway, whatever you chose to do....practice, practice, practice

Brett

So what about cornflower method? what is it all about?

Anyway, I did not experience on how to demo or to go live.. Though I am planning to.. I just thought that it would be better if i should learn the basics first and go from there.. Anything you could suggest me before i start to demo trade? As what they say, "first thing first".. What should be the very first thing that i have to do.. ?

I appreciate your sharing.. Thanks!

Hi,
I am new and want to know the best way of performing BACKTESTING.. any advice is appreciated. Thanks!
Nawin

Hi irismonster,

First, you need to have a strategy.

Second, you go back to in time let's say last year (or 100 trade) and try to apply your strategy on the chart.

Third, take note for every trade including stoploss, take profit, how many is loosing and how many is winning using your strategy.

Forth, take a summary of your strategy, does it profitable or not.

if you can do algo trading using algo backtesting would be faster and consistent but you need skill in programming to do so. but mostly people do manual backtesting like I said above.

100 Trades are not enough. I can create you a good looking backtest with 100 trades in a few minutes. Would I trade this strategy? Never. For me, it doesn't make sense to backtest manually. But you always should backtest your strategy.
Yes, if they do it at all. But its also true that most people lose money ;D
Cheers

First step should be to get and check your data.
Next you implement your brokers live spread into your historical data.
This is where you should start, and yes, its a bit of work. But trust me, It's worth it.

Backtesting is testing a trading strategy using historical market data to determine its effectiveness in the past. The process entails running the strategy through a simulated trading environment and evaluating how it would have performed in the historical market conditions.

In a nutshell, here is the process to backtest on TradingView:
1. Pick a strategy
2. Choose the asset
3. Input the strategy logic
4. Apply it to the chart and strategy tester
5. Check for faults and fix them if necessary
6. Re-run the backtesting with adjustments to the strategy
7. Implement the strategy on a real account after testing on a demo account

IMO the number of trades would coincide with your trading time frame. You trade the D then 100 might just might be ok. You trade the 15 min no I would say you need much much more exponentially more. Just my buck fifty.

Backtesting is the backbone of any successful trading career. As a trader, you will spend most of your time backtesting your strategy and making refinements to it. To be confident in the live market, you need to collect as much data as possible from your backtesting. Your success is not solely based on a single trade, but a single trade over thousands of times. This makes up your equity curve. You have to put in the hard work here in order to see consistent results. Sure, there will be periods of drawdown and months where you’re in drawdown. But don’t worry, if your strategy is profitable and you stick to it, your equity curve will trend upwards over the long term. I personally have 1,000 recorded backtested trades in my arsenal.

To ensure accuracy in your backtesting, it is important to take your time and go candle by candle. Take trades as you would in a live environment and be truthful to yourself. Avoid the temptation to reverse any candles and talk yourself into taking winning trades that you did not see.
To track your progress, collect data such as the date, risk to reward ratio, pair, and screenshots of your trades. By doing so, you can analyze your results and make informed decisions. You can also make any necessary refinements to your strategy. Taking your time to do it right and it will pay off in the long run.

TradingView is a great platform for you to do your backtesting! But if you're looking at lower timeframe, I think you need to pay to use the replay function.