Are you a Forex tester? If you trade Forex market or want to – you have to be one! Trading with an untested strategy is a way to draining your account fast.
What Forex testing means in practice? How exactly do you do it? Let’s assume you have all the software tools and market data you want. What next?
Obvious answer is – with the help of testing software, run your strategy against the market data and see whether it wins or loses. This is correct, but is only the beginning.
Here we will try to give some tips on what exactly should be done and how. We hope that a forex tester will find them useful. Your feedback is welcome!
Forex Tester Challenges
It is known that to properly define the problem means to half solve it. So, what are the problems that Forex testing must address?
Market data is huge. This problem is the most obvious one. Many years of quotes are available for many currency pairs. Even if you only decide to test on main pairs, still you can literally spend days and days to run your strategy against all data.
Too many moving parts. Also quite an obvious problem, at least for those who tried.
Regardless of how long you spend on running tests, this time will obviously be well spent if eventually you can confirm your strategy is consistently winning. But what if it is not?
Based on tests run, you might get many ideas how to improve your strategy, implement the changes and repeat the tests. But as you know (or will know), this is a never-ending process. We have too many combinations. Couple them with vastness of market data, and your testing might already take weeks to complete.
Exit criteria and quality evaluation. We bet this is least obvious, and not every Forex tester even thinks in this direction. How much testing is enough? In other words, how can we decide that we can stop testing our strategy and start trading it? And after all the testing that has been done, what is the minimum quality level we can guarantee?
How To Apply Standard Testing Practices To Forex Testing
Testing of man-made products is a well-studied area. Properly done, testing is stricly formalized and meticulously planned activity. Any test project is limited in time, so test planning revolves around the questions like:
- what exactly to test,
- to what level of quality,
- with what resources, etc.
Answering which makes it possible to get predictable level of product quality within desired timeframe and budget.
Does the same approach work for a forex tester? Yes. in the second part we will discuss how.
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