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