How to Test Stock Index Trading Strategy - Testing Indices Strategies

Generating Index Signals with a Strategy is one of the easiest method to trade Indices, it's the best way that a beginner trader can attempt to figure out the direction of the market price trend with a good level of accuracy, and with a little back testing on practice demo trading account so as to gradually increase the level of accuracy of this signals strategy

Best way to back test a strategy is by following these 2 steps:

1. Index Paper Trade
2. Demo Trade

Index Paper Trading- This method of testing a Strategy involves placing your Stock Indices Trading Strategy on the trade charts, then take the trading chart back to a particular given date, 3 months back e.g., & then using this trade chart history to figure out where your strategy would have given buy, sell & exit Index signals. Write down these points and the profit per trade transaction on a piece of paper and then calculate the overall total profit after you have recorded a good number of Index trade transactions like 50 paper trade positions Indices transactions & determine if your trading method and strategy is overall profitable, win ratio, loss ratio & the risk reward.

This is an ancient method of testing 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 such as the A3 or A2 paper, graph format paper and plot the charts manually (Imagine drawing the trading 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 illustration, just a sample data of 50 Index trade positions is all we need.

A good Indices tool to use to back-test your Stock Index Trading Strategy is known as the MT4 Step by Step Tool. Found on the MT4 trade charts tool-bar of MT4 software, If you want to find the charts tool-bar in the MT4 trade software it's at the top of the MT4 platform. If it's 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.

MetaTrader 4 Software Chart Tool-bars - How to Trade Indices For Beginner Traders

MT4 Chart Tool Bars - Step by Step Button for Testing Indices Strategies Described

Once you get this MT4 Stock Index 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 Trading Strategy would have generated either a buy or sell Indices trade, & where you would have exited the transaction, then writedown the amount of profit/loss per trade transaction and out of a sample number of Indices transactions you'd then calculate the overall profits/losses generated by the Indices strategy.

If your 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, and determine why these trade positions were profitable. And also keep a log of all losing Indices trades, determine why these trade positions made a loss & then avoid making these same mistakes the next time you trade using your trading strategy.

Tweak your Stock Index Trading 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 Index money management even a strategy with a win ratio of even 30% i.e. Less than half of your trade positions earn profit you can still earn and make profit. You may want to study this topic to know and learn what the table/illustration below is all about: Risk to Reward Ratio.

Risk to Reward Ratio Chart of Money Management Strategy - Strategies Described

A manual Strategy is still the best way to generate signals compared and analyzed to the automated trade Strategies, a manual Indices strategy is a better method and is also much simpler to implement.

However, other traders prefer automated trading Strategies and for those then they can check the info on this page MQL5.com Expert Advisors(EAs) & automated Strategies.

You can also view our extensive listing of 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.

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