February 11th, 2010
Posted in Article courtesy of GBPBOT
First you may use backtesting. Here you take your system and work out on paper how well it might have done on the recent historical market, i.e. The last six months or whatever period you select. This doesn’t take too long as you can quickly scroll thru historical charts searching for the signals that would have led you to make a trade if you had been operating your system live at that time.
Backtesting should give you an idea of whether a system has potential. Naturally the market is not going to copy in the same way so you do need to take under consideration the proven fact that you may have struck fortunate or unlucky and picked a time when the system performed surprisingly well or badly.
Because of this, it’s best to backtest over the longest possible time and maybe split your tests so that instead of testing, for example, one full year when the market should have been especially powerful or weak, take the first quarter of year 1, quarter two of year two, etc so that you test one 3-month period from every year of four years. This gives you a good period spread without requiring you to cover 4 whole years.
The second way to test forex systems is in a demo account. Here you are working with the live market but not using real money. This technique is slower because you have got to wait for your signals to come up for real . On the other hand, it emulates real live trading techniques with the possibility of slippage and other factors which aren’t gong to turn up in back testing.
Remember that you can test several systems at the same time in a demo account, provided you keep separate records of their performance. Or you may use many demo accounts. In this fashion you’ve got a better chance of ending up with at least one moneymaking system at the end of your period of testing.
Forex demo accounts also have the edge that you are developing your live trading talents and familiarity with a software platform and charting service at the same time as you are running your tests. This gives you solid real time training to prepare you for the moment when you go live with real money. Most forex brokers will provide free demo accounts which you may use to test foreign exchange systems.
Tags: automated software, currency trading, EA, expert advisor, forex bot, forex trading, GBP, review, trading software, trading system