Does backtesting work?
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Thread: Does backtesting work?

  1. #1
    Hey men,

    I have this EA that made a killing when performing a backtest at MT4. It basically went from 1000? to 90000? In 3 months. The drawdown was only 16%. However, once analyzing it did not perform anywhere near that. What is the problem and what is the purpose of performing a back test whenever there is such a huge difference?

  2. #2
    Quote Originally Posted by ;
    Take the time to read this if you want a real response. One of the most difficult things that new traders need to grasp about the charts they're viewing is this: the only information each candle holds in its own database is : the candle Open price. The candle High price. The candle Low price. The candle Close price. The candle open date and time. That is it folks. Now consider the things which are vital to a screening the possible outcome of trading which isn't held in each candle's database: the disperse. Consider this for a few seconds. By default, CrapT4's...
    Always curious to read about someone who proceeds to use a trading platform that he thinks is crap when many others can be found. Very curious.

    Surfac - You can read my response to a similar question here :

    https://www.nigeriaforextrading.com/...potential.html

    Remember, you are attempting to simulate actual trading. There are many facets which Strategy Tester in MT4 doesn't take into account. You might want to try another testing mechanism so it is possible to compare the results from your MT4 tests.

  3. #3
    Thank You Vitzaza,
    That's good to know. I will work on my own trading plan to document the specific entry and exit rules.

    Market conditions vary over time and provided you took a statistical number of trades over many years, if one didn't have a clear rule set, could you not estimate the profitability with reasonable certainty?

    I understand something I can not account for in Forex Tester is that the odd spike usually caused by news. In actual trading, at least, an individual can check the calendar.

  4. #4
    Yana, it's though question for me , the problem is in forex trading we have to keep up the development even we begin with a small profit and ought to be suit with your trading style and profit will follow with your skill . IMO no number for me.

  5. #5
    Quote Originally Posted by ;
    Luckily, Dukascopy includes a large archive of tick data for free. Their OHLC information is fairly crap though (sometimes off with a few hundred pips!) .
    Is the OHLC data actually that poor? I just started playing with it for backtesting and it sounds reasonably accurate. (Although I have found things that I cannot explain but I cannot start a thread about them because I'm still a junior member on nigeriaforextrading...)

    Can you point me to a few of those huge errors in Dukascopy data?

  6. #6
    I bought the forextester a few months back but I always caught myself 'cheating' and fast forwarding during more dull times. I find that backtesting did not work for mepersonally, but perhaps it is something. It eradies all emotions and the emotional impact for me which I discovered have the largest impact during my live trading. Just my 2 cents

    Rex

  7. #7
    Quote Originally Posted by ;
    ... what's the point of doing a back test whenever there's such a huge difference?
    Backtesting ought to be used only to confirm that the stretegy is trading according to the principles ... Never to check its profitability.

  8. #8
    Quote Originally Posted by ;
    Hey guys, I've this EA that made a killing when performing a backtest at MT4. It basically went from 1000 to 90000 in 3 weeks. The drawdown was just 16%. But when testing it did not perform anywhere near that. What is the issue and what is the purpose of performing a back test when there's such a huge difference?
    Back-testing has its own purpose. There are pros and cons to it.

    Understand what you're back-testing and everything you look for when you back-test a 'trading system'.
    Once I back-test a specialized trading system, there just two things which I look for:-
    - that the frequency of the commerce setups occurring and the time frame when those setups happens and the market session.
    - test my entry and exit egy for every one of the timeframes I want to trade, H1, H4 and D1.

    Back-testing also lets you examine your money management egy.

    https://www.nigeriaforextrading.com/...1995709210.pdf

  9. #9
    It works but not all of the time. Markets are dynamic and thus you can't say 100% what worked yesterday will work tomorrow. However, overall backtesting could be crucial in coming up with a egy.

  10. #10
    Mt4 doesn't possess all the data for all the price movements within a candle (tick data), so what exactly it does is just predict what occurred within a candle that's ofcourse not accurate and your results should not be depended on.

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