What is Forex Trading? The answer to this question is going to be expanded through a discussion regarding the good things that backtesting can bring to forex traders. At the same time, we will also provide options applications that support backtesting accounts.
Backtesting is an action that is performed by a trader to check the effectiveness of a trading strategy by assessing its viability. In a sinoler sense, said action is a simulation of a real trading situation with the use of historical data. This data helps the trader to predict market movement by means of analyzing risk and profitability. Based on an expert’s point of view, a well-tested strategy via backtesting can yield positive results and is expected to provide the same positive outcome in the real trade.
Benefits of Backtesting
Since backtesting is a simulation activity, conducting a backtesting session prior to real or live trading will help you feel more confident about the application of the backtested strategy. This technique is backed up by a trading principle which states that any strategy that has been proven to provide positive results in the past will also work well in the future and vice versa. In addition, backtesting is also useful in the assessment of a particular strategy. For technical traders, the results that were obtained from backtesting a strategy can be used to identify if the said strategy possesses predictive value or not. Thus backtesting can give you options by means of indicators such as Total Return on Equity (ROE), Total Profit and Loss, Total Gain Loss Ratio, Annualized ROE, Volatility, and Risk-Adjusted Returns.
3 Backtesting Applications
Backtesting can be an included feature in most trading platforms because of its known importance to both newbies and seasoned traders. Here are some of the commonly used backtesting apps.
1. MetaTrader 5 (MT5)
This trading application possesses a backtesting feature and it is just amazing to note that it has some distinct features which are not included in other backtesting applications. It has a strategy tester and multi-currency tool. As a simulator, MT5 provides an opportunity for forex traders to check past trading events and rerun the market at any day they wish.
2.NinjaTrader 8 (NT8)
Dubbed as a versatile application, NT8 supports any technical indicator, strategy, or instrument. Traders love the fact that it can provide an itemized report on the performance of your trading strategy as well as your profit and loss levels in each position.
A distinctly wonderful feature for this application is its capacity to provide backtesting on time frames ranging from 1 minute to month’s charts. It also has automatic trendline detection and exchanges of data in real-time.
Backtesting is an essential action that needs to.be practiced by a trader right after knowing “What is Forex Trading?” Such action is important because it provides an initial idea to the trader if his desired strategy will match his positions in the live trading setting.