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5 Questions You Need To Have Answered Before You Back-Test Your Forex SystemAs 90-95% of new forex traders lose money within the first 3-6 months this article helps to guide new forex traders by asking 5 questions that the forex trader needs to know prior to back-testing their forex system. Let us jump right in... 1. What data type are you using (or going to use)? I know this sounds strange, especially if you have experience from another market such as stocks as their generally is only one type of data source available. However, in the forex market you can have up to 4 different data types: bid, ask, mid and indicative. Each have their own little nuances. If you would like to know more about the data types then visit the article written about the perils of indicative prices. As this will save me from having to repeat the information again and boring those who've already read it. So, if you know you have indicative prices then you know you're in for some good results! However, if you have any of the other three you need to be careful on how stop and limit orders are placed. As an example: If we had bid price history and we were looking to place a buy entry stop at 0830 EST according to the day's high, then we know that the bid price will not accurately reflect what the actual price of our order should be. You would have noticed that if you placed a buy entry stop at the exact same price as that of the day's high you would have entered prematurely - you would have entered 4 or 5 pips before the high or the low of the day was touched (the exact same amount as the spread your broker offers!). This leads me into the next most important question... 2. What spread is your broker offering on the currencies you are bask-testing? You need to know this as this can help you set your slippage settings on each currency. As our example in question 1 pointed out. We found that our buy at the day's high method did not exactly work because we bought at the BID PRICE high, not the ASK PRICE high - the price that we need when we place our order TO BUY. Therefore, we enter in a slippage setting representing the spread that would be exhibited by this trade on this currency. But knowing at what price to buy is only half the problem... how do we know what quantity to buy? 3. What margin does your broker offer? If we know at what price to buy our currency at we need to inform our broker on what quantity to buy to fulfill the order. We only know what quantity to buy by the margin that the brokerage firm offers. Most brokerage firms offer 100:1 leverage, however, some firms offer mini accounts with 200:1 leverage, others only 50:1 leverage. Find out the margin required. 4. What restrictions does your broker impose? Now, I don't just mean margin and spread restrictions as I have mentioned above. These are important in their own right, what you need to find out are the details. This is probably the most important question of all as the fine line between success and failure can be found in the details. Now you can have this questioned by one of two ways: 1. You can find out through experience (generally the most expensive way unless done through the demo account!); or 2. You ask your broker (the cheapest and best way). Why is this so important? I hear you ask. Well let's say you have a system that trades any gaps that might form on Sunday at 1700 EST, but your broker does not open until 1730 EST. You either need to factor this restriction in to your system, or move onto another system completely. Or, you may have a system that has 10 pip stops, but you find out that your broker will only let you place 15 pip stops from your initial entry price. Once again you will need to change your system to see whether it still performs well, or throw out your system (or change your broker)! In fact one of the most devastating restrictions imposed by FXCM is that they do not accept stop entry orders if price never happens to trade at your entry stop price! FXCM will honor and "take the loss" of your OPEN stop positions, but if the liquidity is not there and price has shot straight through your stop price then you will miss out. This can have disastrous effects on your system results as you are left wondering on trades where you made good returns - "Would FXCM have got me in?". You may want to read of some of the quirks I use when placing entry stop orders on FXCM that could be of huge benefit to you to help you possibly get around this problem. The restrictions by your broker are only half your systems' success, you also need to find out about another more important restriction... yourself. This leads me to the final point... 5. What restrictions do you have? This is a vitally important question. Most people test their systems and fall in love with the results but find when they trade their system they have lost their account and that most of the best signals occurred while they were sound asleep! As the forex market is a 24 hour market, you need to put into place restrictions in your system that will be realisticly conducted by you during the course of a normal trading day. There is no use operating a trailing stop method that changes your stop points during times when you are asleep and cannot possibly do so. I hope this article has made you aware of some of the important things that need to be known prior to testing your system. Article written by Ryan Sheehy from Currency Secrets.com. Where you will find reviews on forex data vendors, signal providers, brokers, and popular forex resources, along with more quality articles... all for f*ree!
 MORE RESOURCES updated Wed. December / 07 / 2022
FX Settlement Risk On the Rise: BIS Triennial Survey Traders Magazine How To Start A Forex Trading Company At Home Business Review What is FX trading? MoneyWeek Risks, Opportunities, Pros, & Cons for Forex Traders in 2023 The Yucatan Times Forex Trading: 4 things to know before trading Murcia Today Forex: How currency trading works — Daily Nigerian Daily Nigerian The Crypto Industry Struggles for a Way Forward After FTX Collapse The New York Times Forex Trading Tips: Currency Trading Tips for Beginners The Online Citizen Asia currency trading Archives develpment.analyticsinsight.net EUR/USD Technical Analysis: Most Appropriate Selling Levels DailyForex.com Canada shares lower at close of trade; S&P/TSX Composite down 1.25% Investing.com India How Forex Traders Use ISM Data DailyFX USD/JPY Technical Analysis: Attempts to Start Trend Reversal DailyForex.com U.K. shares lower at close of trade; Investing.com United Kingdom 100 down 0.59% Investing.com India Rupee at over 1-month low on renewed Federal Reserve rate hike fears Business Standard Small Investors Who Jumped Into Crypto on FTX Say, Now What? The New York Times India in trade talks with UAE, Saudi Arabia, plans new 'Vostro' bank accounts: Officials Arabian Business Japan government stayed out of currency markets in November The Japan Times We’re Just Entering the Middle of This Bear Market Money Morning Integral reports lowest FX volume in two years FinanceFeeds Asian shares rise except Japan as markets eye China protests The San Diego Union-Tribune 10 Best Forex Brokers in 2022: Top 10 FX Trading Platform Reviewed and Ranked ABC Action News Tampa Bay What is Forex Trading? A Beginner's Guide for [cur_year] Business 2 Community TR Basics of Forex Trading – Part 1 Yahoo Finance The Most Popular Ways To Trade Forex And Earn Good Money Drift Travel Magazine Pound Euro (GBP/EUR) Exchange Rate Wavers amid Breakthrough in NI Protocol Negotiations - TorFX News WTI Crude Oil Forecast: Gives Up Momentum Again DailyForex.com Volatility Spells Opportunity in the Currency Trading Market Legacy Research Group Is Forex Trading Profitable? Beginner's Guide for December 2022 Business 2 Community TR What Is Forex Trading? Finance Monthly The Fed Is Nowhere Near Done with Rate Hikes Money Morning How to Know Which Currency Pair to Trade Startup.info Forex vs crypto: what are the differences? IG International China's Yuan Surges in Global Currency-Trading Rankings The Wall Street Journal Best Pairs to Trade in Forex in December 2022 Business 2 Community TR What Are the 4 Types of Forex Traders? Which One Are You? DailyForex.com What is forex trading and how does it work? The European Sting What are the Pros and Cons of Forex Trading? RealtyBizNews 9 Best Forex Trading Apps for December 2022 Business 2 Community TR Who Controls The Forex Market DailyForex.com Can You Make Money Trading Forex? Finance Monthly Federal Court Orders Texas Fraudulent Forex Trader and His Company to Pay Over $940,000 | CFTC Commodity Futures Trading Commission Forex vs. Crypto Yahoo Finance Bank of America Grows its Global Foreign Exchange and Emerging Markets Macro Trading Team Bank of America Newsroom What are the Benefits of Currency Trading for Corporate Leaders? Analytics Insight Moscow Limits Foreign-Currency Trading to Shore Up Struggling Ruble The Wall Street Journal Major Forex Currency Pairs - The Most Traded Currency Pairs DailyForex.com Forex Trading TD Ameritrade
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