The Expert Advisor is created using a programming language, and then tested on MT4 Strategy tester. It is a similar language to C, and uses text editors for the coding. Strategy tester uses historical data for testing the program. The results are then summarized at the end. The user can select the length of the testing period and currency, as well as the chart time frame to be used. Read more?
The importance of back testing results
Expert Advisors are codes that can be programmed by people who have a programming background. They will then trade on your behalf. Before putting the strategy to live trading, let’s take a look at some back-testing results.
Profit factor is one of the most important factors to consider. Divide the total wins by the total loss to determine this factor. Long-term, anything more than 1 will yield profit. A profit factor of two is preferred due to the current market and news. Anywhere between 1.3 and 1.8 must be reinforced with a variety of strategies as backup.
Max Draw Down
The minimum loss that can be made on the trading account at any time is called the draw down. The maximum draw down is the lowest capital amount that you can have at any time. This includes realized or unrealized profits. It is important to set up your settings to prevent margin calls. As a general rule, it is best to use an EA with a product that has fewer than 20% maximum drawn down. Anything between 50% and 21% can be dangerous, so it must be set properly to prevent margin calls. It is not recommended to go above 70%.
The initial deposit, duration, and gross profit are all included in this figure. This figure will be higher if your program is more successful. Profitable results can be achieved with any number above 100 or 150.
The strategy should be tested with at least twelve months of data, as this covers the major releases and seasonal changes that affect the majority of traders. When fundamental news such as Non-farm payrolls or unemployment rates is announced, forex prices can change. The market reacts according to the forecast differences. The volume will be affected by the holidays in Japan, Europe, and United States. All these events will be used to test the EA.
Maximum and Average Loss
I am not interested in winning trades, but rather the losses. This is crucial for margin calls and setting up other forex automated programs. Look at the average losses and not just zero or little. The EA may suffer large losses, but averaging them will result in small losses and a profitable trade.