February 7, 2014

Analyse Your Forex Trading Strategies Result

forex trading strategies

Back testing is a process where you take forex trading strategies and apply them to historical data of forex rates. Depending on the data, results from your strategies’ trades are calculated. You simply cannot use any strategy in a live market without actually back testing it.

Back tests are supposed to show you the true potential of the trading strategies that you are trying to evaluate. They will show you everything about your strategies ranging from what their strengths are and what their weaknesses are.

However, you need to be able to analyse the results properly to find out the true nature of your strategies. Here is what you should be looking at.

What Is The Maximum Number Of Trades?

You should begin by checking how many trades were actually made by your forex trading strategies because you need the number of trades to be in the right range depending upon your trading style. Too many trades would mean overtrading while too few would mean that you are not utilising all the opportunities coming your way.

What Is Your Win Percentage?

After you have figured out the number of trades your forex trading strategies are making, you should figure out their win percentages. In other words, find out what percentage of your total number of trades are winning and what percentage are losing. This will give you a clear idea of the accuracy of your strategies. You can refine this further by sorting the results and then calculating win percentages.

What Is Your Total Account Growth?

At the end of the day, you want your forex trading strategies to bring in profits and make your account grow. Therefore, while trade numbers and success rates are important, the actual determining factor is how much your account grew during the back test.

What Is The Maximum Drawdown?

It is vital for you to consider the maximum drawdown that your forex trading strategies are creating during the back testing procedure. Drawdowns can singlehandedly break your account apart even if your strategy is actually profitable in the long term.

For instance, if your good strategy has a large drawdown then it will result in a margin call before your strategy can even complete the time period after which it creates profits. Thus, you should never neglect maximum drawdowns after a back test.

What Were The Most Promising Setups?

You should also do some discretionary analysis of the results of your back tests of your forex trading strategies. In other words, you should also look at the results subjectively.

Your agenda should be to find out the kind of setups which have worked most consistently. Once you have spotted such setups, you will have to think how you can use them to either improve your strategy or create another new strategy with better potential.

Alternatively, you can simply use what you find with your subjective analysis in the live market. This has the potential to give a significant boost to your overall profits.



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