It ‘s essential that a trader has confidence in his trading system. Why? If confidence were to be lost, traders could no longer follow its trading system, strategy, blasting everything that worked. The process of back testing, in this sense, is designed to give greater confidence to the trader, in addition to helping the traders to familiarize themselves with the inevitable fluctuations of capital that you encounter when you open a position.
How does the back-testing of a strategy forex ?Starting from a back-test is able to offer a large amount of feedback and statistics relating to a trading foreign currencies, it can be run on a mechanical or discretionary. There is a greater absolute validity of one of two approaches, because the choice depends on the system that you intend to try. One advantage of the discretionary approach is that you will be familiar with the approach of using the trading strategy.
Let’s see what are the criteria to be considered while doing back-testing:
- entry criteria, ie the breaking of the maximum of the day
- exit criteria, which determine when to exit the market. A good exit point could be reached to set the stop loss 30 pips away
- criteria for times when entering the market, for which you might consider 8 to 15, from Monday to Thursday.
The rules that we have seen above could form the basis of your test. You must make sure to test the system with different market conditions and with different trends, to be sure I can deal with various situations of the market. A good test should also be done on different currency pairs, since some strategies seem to work better on some currency pairs rather than on others.