BackTesting Trade Systems - Testing Strategies
Generating Stock Indices Trading Signals with a Stock Indices system is one of the easiest method to trade Stock Indices, it's the best way that a Stock Indices beginner can attempt to determine the direction of the Stock Indices market trend with a good level of accuracy, and with a little back testing on demo practice trading account so as to gradually increase the level of accuracy of this Stock Indices signals strategy
Best way to back test a Stock Indices strategy is by following these two steps:
- Indices Paper Trade
- Demo Trade
Indices Paper Trading- This method of testing a Stock Indices system involves placing your system on the Stock Indices trade charts, then take the Stock Indices trade chart back to a particular date, 3 months back for example, and then using this Stock Indices trade chart history to determine where your strategy would have given buy, sell & exit Stock Indices signals. Write down these points and the profit per trade on a piece of paper and then calculate the total profit after you have recorded a good number of Indices trades such as 50 paper trades Stock Index transactions & determine if your trading method is overall profitable, the win ratio, the loss ratio & the risk: reward.
This is an ancient method of testing Stock Indices systems that was used by traditional investors when there was no online exchange markets or computers for that matter, the trader would use tools like A3 or A2 paper, graph format paper and plot the charts manually (Imagine plotting the charts on your trade software by hand every day or every hour, would you be ready to do that? I doubt) Those investors were hardworking than most, some were so used that they still continue to paper trade the online Stock Indices market & plot the Stock Indices trade charts on paper, anyway for our paper method example, just a sample data of 50 trades is all we need.
A good Stock Indices tool to use to back test your system is known as the MT4 Step by Step Tool. Found in the MetaTrader 4 trade charts toolbar of MetaTrader 4 software, If you want to find the Stock Indices trade charts toolbar in the MT4 software it is at the top of MT4 software. If it is not: Click View (next to file, top left corner of MetaTrader 4)>>> Toolbar >>> Charts. Then click the Customize button >>> Select Step by Step >>> Click Insert >>> Close.
MT4 Platform Chart Tool Bars - How to Trade Stock Indices For Beginner Traders
MT4 Chart Tool Bars - Step by Step Button for Testing Trade Systems Explained
Once you find this MT4 Indices tool you can move your trade chart backwards, and use this MT4 tool to move the Stock Indices trade charts step-by-step while at the same time testing when your system would have generated either a buy or sell Stock Indices transaction, and where you would have exited the Stock Indices transaction, then write down the amount of profit/loss per trade transaction & out of a sample number of Stock Indices transactions you would then calculate the overall profits/losses generated by the Stock Indices strategy.
If your strategy is profitable on paper method then, its time to practice trade and testing if the it is profitable on the real market as it is on paper method. This is the process of testing or back testing a Stock Indices system.
Maintain a Stock Indices Trading Journal to keep track of profitable Stock Indices trades, and determine why these Stock Indices trades were profitable. And also keep a log of all losing Stock Index trades, determine why these Stock Indices trades made a loss & the avoid making these same mistakes the next time you trade using your strategy.
Tweak your trading system until you get a good risk: reward ratio, with the Stock Indices signals that you generate. Aim for a good risk: reward of 3:1 and a win ratio of above 70% is a good ratio, with good equity money management even a Stock Index strategy with a win ratio of even 30% i.e. Less than half of your trade transactions earn profit you can still earn profit. You may want to study this tutorial to know what the table below is all about: Risk to Reward Ratio.
Risk to Reward Ratio Chart of Money Management Strategy - Trade Strategies Explained
A manual system is still the best way to generate Stock Indices signals compared to automated Stock Indices systems, a manual Stock Indices strategy is a better method & is also much simpler to implement.
However, other traders prefer automated Stock Indices systems & for those then they can check the information on this page MQL5 Expert Advisors & automated Stock Indices systems.
You can also view our extensive listing of trading strategies tutorials that provides you with various methods of buy and sell technical analysis using a number of diverse technical methods, navigate to Stock Indices Strategies Section.
