We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bullish
Oil - US Crude
Bearish
Wall Street
Mixed
Gold
Bullish
GBP/USD
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • Support and resistance are the cornerstone of technical analysis, making it the foundation that you build your knowledge on. Build a stronger foundation here: https://t.co/yXLaRpl90I https://t.co/MhP7opgk4a
  • Investors in stocks, commodity currencies and energy have been praying for a massive fiscal bazooka to combat the virus effects. It looks like they’re going to get it. Get your market update from @DavidCottleFX here:https://t.co/e2ciGSYftY https://t.co/Udoi5UMJrl
  • The ‘V-shaped’ recovery in USD/JPY just failed to hit its target and is now moving lower again. Important support is now being tested. Get your $USDJPY technical analysis from @nickcawley1 here: https://t.co/koiac0Rxvs https://t.co/CsVsS7PVMV
  • The Australian Dollar has been lifted from its multi-year lows by hopes that global financial authorities can fend off the worst of the #coronavirus‘ effects. Get your $AUDUSD market update from @DavidCottleFX here: https://t.co/GC5pwNbY9S https://t.co/OryobNq7uL
  • Before considering to enter a position, price action must come into contact with the upper or lower channel line at least three times. Learn how to validate a channel here: https://t.co/Rd5hDm7gRo https://t.co/mubPgmDRRY
  • A tidal wave of cash waits to return to virus-battered assets, backstopped by huge stimulus. It is unlikely to deploy until infection slows, whatever the US administration prefers. Get your market update from @DavidCottleFX here: https://t.co/OWOi2HxejD https://t.co/jvMXT7te1h
  • The bullish engulfing candle is one of the forex market’s most clear-cut price action signals for reversals and continuation. Learn more about this price action trading signal here: https://t.co/edEHzyoCJT https://t.co/vHPSW7Vm96
  • It was a big week for GBP/USD as Cable crushed shorts, rallying more than 1,000 pips off of last week’s lows. Get your $GBPUSD technical analysis from @JStanleyFX here: https://t.co/n6vYfe6Gfh https://t.co/zQq74Zzxsv
  • The bull flag pattern is a great pattern to add to a forex trader’s technical arsenal. Explosive moves are often associated with the bull flag. Learn more about the bull flag pattern here: https://t.co/ZNRBvNELeJ https://t.co/CKkWNMLkuw
  • The US Dollar could rise if key ISM, PMI and nonfarm payrolls data causes recession fears to swell and rekindles appetite for the haven-linked Greenback. Get your $USD market update from @ZabelinDimitri here: https://t.co/iTlnxWuSqn https://t.co/brEsDw2a5K
Guest Commentary: 5 Limitations of Back Testing

Guest Commentary: 5 Limitations of Back Testing

2012-01-13 02:00:00
Yohay Elam, Forex Crunch,
Share:

There are lots of forex trading system and EAs out there. Some may be good and others can be bad. While it’s definitely a good start, it isn’t bullet proof.

Expert Advisors (EAs) are small pieces of software that automatically open and close forex positions according to the code written inside. MetaTrader has an excellent environment for programming, executing and and analyzing the results of backtesting.

A trader can acquire an EA and test it with specific parameters: stop loss, take profit, different currencies and different periods of time. MetaTrader also enables testing the different options in a single run, saving the trader time.

All this is really great, yet backtesting has its limits:

  1. Spread jumps: when big news come in, the brokers spreads start growing. These bigger spreads are “extra-tax” on the trader. These spreads aren’t always reflected in the historical data provided by the broker.
  2. Future spreads: Following the previous point, you can’t always know when the spreads will jump and how they will affect the markets and your positions. Yes, an event such as the Non-Farm Payrolls release or GDP are known ahead of time. These can be avoided. But breaking news about the Greek crisis can come at any time, move the markets and enlarge the spreads.
  3. One minute resolution: Many brokers supply one minute figures: open, close, high and low values for one minute. They don’t supply every tick in their historic data. Traders that seek long-term moves won’t be excited from this inaccuracy, but day traders miss out on a lot of valuable data and cannot rely on backtesting.
  4. Demo accounts can differ: Backtesting is often done on a forex demo account. The historic data in these accounts isn’t always 100% compatible with the data for real accounts.
  5. Market patterns change: Even if all the historic data is perfect, and your EA shows high profitability for a long period of time, patterns change. Volatility changes for the whole market or for a specific currency. Central bank intervention can surprise and break patterns, etc.

There is no full proof forex robot and no EA that will always work. Backtesting is good for having a general idea about the quality of the EA.Successful EAs should be first promoted to forward testing on a demo account. This takes more time, but provides a higher level of accuracy. Only after successful forward testing, you can try the EA on a real account. But remember – nothing is guaranteed.

Further reading: 5 Most Predictable Currency Pairs - Q1 2012

By Yohay Elam, Forex Crunch

Would you like to see more third-party contributors on DailyFX? For questions and comments, please send them to research@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.