Why You should BACKTEST automated trading strategy

by MD Ashik Finance & Economy Analyst

Global financial markets are more dynamic every day because transactions growing to record levels. The foreign exchange market is the center of this massive growth as it continues to huge volumes of transactions per day, now go beyond levels 5.3 trillion.

Because of this dynamic change in world trade, investors are constantly seeking new ways to beat the market and pocket significant gains on their investments.

Among the means being sought is automated trading. This method of trading has gained tremendous popularity in recent years.

Here, traders use various algorithmic tools and systems to analyze the market, predict potential market movements and act on them independently.

Although the automated trading has been used for some time now, the recent market following the emergence of new technologies has allowed the industry to evolve into something more intuitive and helps some traders even beat the best on the market.

However, to use this form of trade to great effect, operators must first bring the various rules and strategies that they intend to use in the test based on past performance in a process called backtesting.

Operators must backtest the different strategies of each instrument they intend to apply the technique based on the statistics of the past.

So what exactly is backtesting?

In general, backtesting involves examining a particular strategy that you intend to apply in trade a currency pair or ETFs, etc. at a distant date in the past.

In other words, a trader looks at a similar occasion in the past, preferably a similar time and tries to evaluate how the implementation of the strategy it intends to use would have worked then.

This also means assessing the time it would have taken the strategy to close, make profits/losses and the market conditions then prevailing. Both scenarios should be as similar as possible to the strategy is almost 100% perfect, but perfection is never guaranteed.

The strategy may involve several rules that instruct an automated system to take various measures depending on the operator's needs, as if the GBP / USD touches the 1.3000 levels, enter an order Buy with a stop loss at 1.2800 levels and a profit target at 1.3500 levels.

In this case, the trader does not need to test the strategy on the exact levels, but the model of the currency pair movement should be similar.

For example, if the current trend is a decline in an area characterized by a series of dips and rebounds (upper and lower down below), then the tendency of the control period post in the past must have similar characteristics.

Why is it important for backtesting automated trading?

Well, it is quite simple. Automated trading is a form of non-intervention of trading that does not require the operator to keep an eye on the price movements of its selected businesses.

This means that the application of bad rules and strategy at the wrong time and the wrong pair or commercial monetary instruments could end up being a total financial disaster.

Therefore, to minimize the risk of financial loss, a trader needs to test his strategy against similar opportunities in the past, and as described above, this process is called backtesting.

Markets have become more dynamic in recent years, making it even more difficult manual trading.

More institutional traders are now closely involved in the high-frequency trading using powerful business systems that keep them ahead in the game. To get closer to these traders, retail traders must adapt.

However, this does not mean that traders should abandon the important aspect of learning to trade for themselves.

There are still some very important lessons to learn which can be as vital in one of the commercial experience. In addition, the systems do not always work and sometimes you may find yourself returning to manual trading.


Now, in order to run a backtest your trading strategy, a trader needs to use a system that allows backtesting. There are several out there, but it is always good to check various reviews of the trading system of the best systems on the market.

The choice of the straight trading platform is crucial to automated trading successfully.

Note that with the automated trading, traders do not need to interact with the system frequently, but do not require the establishment of their trading strategies according to their rules coded for targeted benefits and risk appetite.

Also, you should analyze the market and make new strategies. Besides you can use Forex trading signals it'll be beneficial for you.

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About MD Ashik Innovator   Finance & Economy Analyst

30 connections, 0 recommendations, 91 honor points.
Joined APSense since, June 23rd, 2019, From Khulna, Bangladesh.

Created on Oct 15th 2019 01:39. Viewed 623 times.


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