Forex BackTest Evaluation- A Systematic Approach
By: Warren Seah
1. Modeling Quality
Any back-test that is generated on an 1hr chart will be required to have at least 90% quality. Lesser than 90% will produce unreliable results. Another indicator that shows evidence of unreliable results is mismatch chart errors. (Re-calculate your chart history from your feed provider to solve the problem)
2. Back-tested on Which Broker Data Feed
If you are looking at a sales letter, you want to know where did the provider generate his strategy back-test from. It will be ideal if it is generated on a live server rather than a demo server. The differences will be discuss in another articles so just keep in mind.
3. Header
This will include the symbol and period the strategy traded on.
4. Parameters
This section will indicate the options the strategy allow you to personalise for your own trading needs. You can also find clues to how the strategy trade just by looking at the parameters here. System providers do not usually show this data to the public.
5. Return on Investment (ROI)
Calculate ROI by using net profit divided by initial deposit and multiply by 100%. ROI is a positive figure indicates a profitable strategy.
6. Initial Deposit
Some strategies need at least $10 000 trading capital. You want to see if the system provider uses an initial deposit somewhere close to the capital you have in your trading account.
7. Maximum Drawdown
Draw-downs are retracements in equity from previous equity highs in short, losing periods. Maximum draw-down is calculated by finding the highest peak in the equity curve and subtracting the subsequent lowest trough before the next higher peak in the equity curve.
When equity was reduced from a maximum of $10 000 to a minimum of $5 000, the maximum draw-down is $5 000 (50%).This particular ratio is what we believe to be the most important of all ratios because it tell investors in advance how much draw-down to tolerate before the system hit the bucket.
Can you tolerate the kind of draw-down listed for the strategy? Or does the robot provides money management which allows you to lower their risk and draw-down?
8. Profit Factor
Ratio of gross winnings divided by gross losses. PF greater than 1 indicates system is profitable.
9. Percentage of Profitable Trades
Self explanatory. Disadvantage of this ratio is that it does not tell us the magnitude of the profitable trades.
10. Average Profit/Average Loss
Ratio of average profit per trade divided by average loss per trade. Ratio greater than 1 and the higher the ratio indicates that the average profit is greater than average loss. This is an ideal risk to reward ratio that we will be looking for in a trending system. It will differ in a scalping system.
11. Equity Graph
It shows the running equity throughout the traded period in a graphical manner.
12. Trades History
Entry Type
Under the Type, it will show whether the system trades with market order (instant order) or stop or limit stop order ( Trade place in advanced).
Average trade duration
The time column will show clues of the duration per trade.
Take Profit and Stop Loss
Can be calculated by the difference between SL and Price and TP and Price.
Maximum loss in equity per trade
Scan through all the trades and look for an order that hit stop loss. Use the figures in Profit/(Loss) column divide by the previous equity balance and multiply by 100%. This will give you an idea of how much risk per trade the system uses. (Does not always apply depend on the characteristics of a system)
Feel free to use this article on your website or ezine as long as the following information about author/website is included.
About the author:
Warren SeahWarren examines commercial trading systems and has researched and analyzed systems to uncover systems which bring in consistent profits.Click Here For More Guides On FxEAreview EA Reviews Criteriahttp://www.FxEAReview.com
Showing posts with label Forex Trading Strategies. Show all posts
Showing posts with label Forex Trading Strategies. Show all posts
Sunday, January 10, 2010
Forex Education \ Is It A Good Idea To Create Multiple Forex Trading Strategies? By: James Woolley
Is It A Good Idea To Create Multiple Forex Trading Strategies?
By: James Woolley
Anyone who has ever tried to create their own forex trading strategy will know just how hard it is. It's very easy to construct a simple trading system, but coming up with a strategy that makes consistent profits is extremely challenging. Nevertheless with a little bit of experience it does become easier, and over time you should hopefully be able to come up with multiple trading strategies.
Of course you basically only need to come up with just one strategy in order to make money. However my own view is that it's often a good idea to try out different things, because there is always the possibility that your current strategy may run into problems if market conditions change.
Furthermore it's also a good idea to have different strategies for different time frames. For instance you may have a profitable strategy that is only able to successfully trade the daily or weekly charts. That's perfectly fine except that you may sometimes have to wait for days (or weeks) on end for a decent set-up to occur. Therefore in this instance it may be worth trying to develop a short-term trading method that you can use during these quieter periods.
I ended up doing this myself because I soon found that despite the fact that my main 4 hour trading strategy made some decent profits overall, there were plenty of quiet periods which were incredibly boring. As a result I started to develop some trading methods that I can use on the 5 and 15 minute charts. These strategies not only enabled me to make some extra money, but they also helped to alleviate the boredom which often occurs when you are patiently waiting for a set-up on the longer time frames.
So the message I want to get across is that it is often worth creating multiple trading methods that you can use on the different time frames. Although you may have advanced skills as either a day trader or a longer term position trader it is always worth applying some of your skills to the other time frames as well because you may dramatically increase your profits.
The fact is that are opportunities to make money on both the short time frames, such as the 1, 5 and 15 minute charts, and the longer time frames, such as the daily and weekly charts. Whichever chart you look at you will find that there are plenty of breakouts that you can trade as well as opportunities to trade with the overall trend.
Of course it's very hard to come up with lots of winning systems but if you do manage to achieve this goal, then you be greatly rewarded with some very handsome profits (and you will of course alleviate much of the boredom that occurs during the quiet periods). I know this to be true because at this moment in time I now have a whole portfolio of different forex trading methods that I can use to trade both the short-term charts and the long-term charts.
About the author:
Click here for more information about a forex course that will teach you all the basics of forex trading, and to read a full review of Forex Nitty Gritty.
By: James Woolley
Anyone who has ever tried to create their own forex trading strategy will know just how hard it is. It's very easy to construct a simple trading system, but coming up with a strategy that makes consistent profits is extremely challenging. Nevertheless with a little bit of experience it does become easier, and over time you should hopefully be able to come up with multiple trading strategies.
Of course you basically only need to come up with just one strategy in order to make money. However my own view is that it's often a good idea to try out different things, because there is always the possibility that your current strategy may run into problems if market conditions change.
Furthermore it's also a good idea to have different strategies for different time frames. For instance you may have a profitable strategy that is only able to successfully trade the daily or weekly charts. That's perfectly fine except that you may sometimes have to wait for days (or weeks) on end for a decent set-up to occur. Therefore in this instance it may be worth trying to develop a short-term trading method that you can use during these quieter periods.
I ended up doing this myself because I soon found that despite the fact that my main 4 hour trading strategy made some decent profits overall, there were plenty of quiet periods which were incredibly boring. As a result I started to develop some trading methods that I can use on the 5 and 15 minute charts. These strategies not only enabled me to make some extra money, but they also helped to alleviate the boredom which often occurs when you are patiently waiting for a set-up on the longer time frames.
So the message I want to get across is that it is often worth creating multiple trading methods that you can use on the different time frames. Although you may have advanced skills as either a day trader or a longer term position trader it is always worth applying some of your skills to the other time frames as well because you may dramatically increase your profits.
The fact is that are opportunities to make money on both the short time frames, such as the 1, 5 and 15 minute charts, and the longer time frames, such as the daily and weekly charts. Whichever chart you look at you will find that there are plenty of breakouts that you can trade as well as opportunities to trade with the overall trend.
Of course it's very hard to come up with lots of winning systems but if you do manage to achieve this goal, then you be greatly rewarded with some very handsome profits (and you will of course alleviate much of the boredom that occurs during the quiet periods). I know this to be true because at this moment in time I now have a whole portfolio of different forex trading methods that I can use to trade both the short-term charts and the long-term charts.
About the author:
Click here for more information about a forex course that will teach you all the basics of forex trading, and to read a full review of Forex Nitty Gritty.
Forex Education \ Currency Trading Information: Your FX Trading Strategy By: James Roshwood
Currency Trading Information: Your FX Trading Strategy
By: James Roshwood
Perhaps the most important piece of currency trading knowledge that you should have is how to put a fx trading plan together.Without one you will struggle big time, I know I have. Without your forex route map you will get completely lost and having one will mean the difference between success and failure.
Remember that the majority of traders beginning out in forex trading lose money, so it is crucial to carry out everything you can to make certain that you are one of the profitable ones. Having a trading plan in place will give you a head start over many forex traders who will simply start trading with no clue of where they are going.
Having a profitable method is important of course but there are many of those out there. Most traders think that the trading system is the one thing that matters and use up all of their time searching for the flawless system that is guaranteed to make money for anyone. But no such trading system exists. Although there are a bunch of fine systems, no system will be successful without a trading plan that is tailored to the specific trader.
This means that you will need to work out your trade plan for yourself. Do not be alarmed however for the reason that it is quite straightforward. Your plan just needs to include three things:
1. Lot size
This can be measured in the number of positions that you will take on every single trade. It may vary according to the strength of your signals or it can be the same for each trade, but it ought to be clearly set out. Do not vary your lot size according to intuition, and do not vary it according to whether your earlier trade was winning or not.
When deciding on the size of your position, you should always consider your leverage and what portion of your trading bank you are willing to commit. This forms part of your RMP (risk management plan)and it is crucial to your forex trading knowledge that it is always to hand.
2. Stop losses
Your strategy ought to include a stop loss, measured in terms of pips. Again you ought to consider the risk that you are taking as a proportion of your overall funds. In most cases you should target for a risk of around 2% for each trade. However, with selected systems or if you have a very low initial pot, you might want to go higher than that to prevent your stop loss being triggered too often. Just be wary that if you do that, you have a greater danger of going bust.
3. Level of Profit
You ought to also settle on the exit position for a winning trade, i.e. how many pips you are aiming to take. If you do not close on this then you will almost certainly be tempted to hang on for s long as possible willing with all your heart that the trend will continue in your direction. Quite often you will be ambushed by an unwelcome reversal in direction and a winning trade can turn into a loser. So it is very key to decide ahead of time how much profit you will take.
Once you have your strategy, it is crucial to keep to it consistently. Resist the temptation to start a trade when the signs are not correct, or to follow your gut instinct at all, that's at least until you have got the experience of many years trading behind you. Also, reduce interruptions whilst you are trading. This will help you to get out of making foolish mistakes and keep you concentrated so that you can make the best of all of the forex trading information that you have acquired.
About the author:
Find out about the tricks of the forex trading world for free at: http://www.greatforexworld.com/ The tips and secrets will not be available for free for very long so head off to http://www.greatforexworld.com/ now
By: James Roshwood
Perhaps the most important piece of currency trading knowledge that you should have is how to put a fx trading plan together.Without one you will struggle big time, I know I have. Without your forex route map you will get completely lost and having one will mean the difference between success and failure.
Remember that the majority of traders beginning out in forex trading lose money, so it is crucial to carry out everything you can to make certain that you are one of the profitable ones. Having a trading plan in place will give you a head start over many forex traders who will simply start trading with no clue of where they are going.
Having a profitable method is important of course but there are many of those out there. Most traders think that the trading system is the one thing that matters and use up all of their time searching for the flawless system that is guaranteed to make money for anyone. But no such trading system exists. Although there are a bunch of fine systems, no system will be successful without a trading plan that is tailored to the specific trader.
This means that you will need to work out your trade plan for yourself. Do not be alarmed however for the reason that it is quite straightforward. Your plan just needs to include three things:
1. Lot size
This can be measured in the number of positions that you will take on every single trade. It may vary according to the strength of your signals or it can be the same for each trade, but it ought to be clearly set out. Do not vary your lot size according to intuition, and do not vary it according to whether your earlier trade was winning or not.
When deciding on the size of your position, you should always consider your leverage and what portion of your trading bank you are willing to commit. This forms part of your RMP (risk management plan)and it is crucial to your forex trading knowledge that it is always to hand.
2. Stop losses
Your strategy ought to include a stop loss, measured in terms of pips. Again you ought to consider the risk that you are taking as a proportion of your overall funds. In most cases you should target for a risk of around 2% for each trade. However, with selected systems or if you have a very low initial pot, you might want to go higher than that to prevent your stop loss being triggered too often. Just be wary that if you do that, you have a greater danger of going bust.
3. Level of Profit
You ought to also settle on the exit position for a winning trade, i.e. how many pips you are aiming to take. If you do not close on this then you will almost certainly be tempted to hang on for s long as possible willing with all your heart that the trend will continue in your direction. Quite often you will be ambushed by an unwelcome reversal in direction and a winning trade can turn into a loser. So it is very key to decide ahead of time how much profit you will take.
Once you have your strategy, it is crucial to keep to it consistently. Resist the temptation to start a trade when the signs are not correct, or to follow your gut instinct at all, that's at least until you have got the experience of many years trading behind you. Also, reduce interruptions whilst you are trading. This will help you to get out of making foolish mistakes and keep you concentrated so that you can make the best of all of the forex trading information that you have acquired.
About the author:
Find out about the tricks of the forex trading world for free at: http://www.greatforexworld.com/ The tips and secrets will not be available for free for very long so head off to http://www.greatforexworld.com/ now
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