You have sweated all those days, months or years for the creation of your strategy and now it is time for FOREX Strategy Testing backtest.
The strategy is nothing more of entry and exit rules, that will give you, the trader, some advantage on other players. The strategy and how you implement or stick to it, will differentiate you from the crowd of losers. The strategy can take you to to heaven or hell.
There are several ways to test your strategy, and from my experience backtesting is the way to go. It can provide you years of data so you can check yourself how your strategy would have behaved in different market scenarios.
There are two ways you can do FOREX Strategy Testing backtest, manual or automated.
First you can have the data on a CSV file, which contains the Open-High-Low-Close (OHLC) values of the candles, based on the time-frame selected. One of the best sources I’ve found for this type of historical data is Ducascopy . Usually what you get is approximately 5 years of values. Based on the values found onto the CSV file you can assess whether your entry or exit rules were met or not.
Please beware that this data are not the same as Tick data (which can be enormous), and as such do not take into account the Spread, Gaps or Ask/Bid differences. As such you have to be extra careful and consider every time your rules are met. If your strategy operates on tight profits or rules involve very small pips (HFT) movement, than most probably this is not the way to go.
Anyway this is one of most preferred ways of testing, due to the very low learning curve required, and the fact that you can find data as far as 2002, which would allow your strategy to be tested into the most challenging market scenarios.
The second way, and my preferred one, is automated FOREX Strategy Testing backtest.
You can open a DEMO or LIVE account with any of the brokers available, which offer FOREX trading. Almost every platform like Metatrader 4 or 5, Ctrader/Calgo, NinjaTrader, JForex or else, do offer the capability of automated bactesting.
You can test years of data within minutes. You can make changes on the fly and apply those modified rules to your strategy with the next click. You can do parameter optimization and much more. You can add or remove rules within the comfort of your home, without the need of having to go through millions of rows just to find out that your rules are not fit for some market scenarios.
All you need is a powerful computer, and you strategy well written into the proper code that your trading platform can interpret. Why a powerful computer? You computer will have to go through your rules based on the parameters you set, and in case of optimization, it will go through them many time for all the period selected. It will have to crunch truly a lot of numbers.
Personally I went for a laptop, as it allows me to move and work in different locations, as well as mobility is a good thing in case you want to share your results with other people, without sharing data.
My laptop is a Lenovo T540p and listed below are it parameters:
- Processor CPU: Intel® Core™ i7-4810M Processor (4M Cache, 2.80 GHz, up to 3.6GHz)
- Operating system OS: Windows 8 Professional
- Display: 15.6″ FHD, Active Matrix TFT Color (1920 X 1080) LED.
- Graphics GPU : GeForce GT 730M 1GB + Intel HD Graphics 4600
- Memory RAM: 8 GB PC3-12800 DDR3L SDRAM 1600MHz SODIMM
I have listed only the most important parameters. You need a good CPU with a good clock speed. I’ve owned both i5 and i7 processors, and the difference between them is quite big, definitely go for i7. Get as much RAM as you can and also a 64bit Operating System that can take advantage of it. Try to get a Full HD display, as it will help you will data visualization or in case you want to do FOREX Strategy Testing backtest in Visual Mode.
But there are cons as well. The learning curve is quite steep, and what you will learn will be applicable to only that platform selected. If you want to build code yourself, it can take a lot of time and outsourcing it is a little tricky. Why I say outsourcing is tricky? Well it is your strategy, which you have to keep safe and secret as much as you can, while outsourcing means that you will share all of your knowledge with a developer.
There are for sure good developers, with a lot of background info that can be checked, as well as published portfolio, but they can cost you a lot. The good ones are always worthy, as they don’t just do code writing, but also code optimization and can give you hints on how your code or rules can work together in the best way.
I have stated my preference above and would stick to it in any case. Whenever you can afford it, go for automated FOREX Strategy Testing backtest. It is fast, it is accurate (only Tick data), it is dynamic and results are shown almost in real time.
Hope you enjoyed this post.
Looking forward to seeing you back soon.Tags: Algorythmic Trading, cTrader, Dollar, Euro, FOREX Account, HFT, High Frequency Trading, Live Account, Live FOREX, MetaTrader, Pound, Robots, Trading, Yen