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How to Backtest a Trading Strategy Using a Simulator ?

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    How to Backtest a Trading Strategy Using a Simulator ?

    Suppose you have a forex trading strategy and want to test how accurate the strategy is.

    You can test it in several ways, one of them is the forward testing method that uses a demo account.

    However, before doing forward testing it is better to test it first by using this backtesting.

    Why Backtesting?
    One of the advantages of doing backtesting is that you can try a trading strategy faster than forward testing.

    But make no mistake, even though you have done backtesting, it still has to be followed by forward testing because the quality of the backtest results is very dependent on the quality of historical data on the price movements you have. To anticipate this, forward testing needs to be done afterwards.

    I once wrote about backtesting, which you can read again. But the article is a way of backtesting an Expert Advisor (EA) or an established trading robot.

    Well, this time I will try to discuss doing backtesting for manual trading.

    Actually this method is also what I used to study trading in the past.

    If you study - say - a technical indicator by scrolling the chart backwards and observing the pattern that has occurred, the pattern of indicators formed is already "made", so the chance of a signal reading error is very small, even almost nil.

    This certainly has the potential to be a problem if you start observing these indicators live.

    That's because often the shape or color of certain technical indicators changes with price fluctuations. This condition is usually called repaint.

    Well, backtesting using a simulator is one solution to study indicators, or even certain trading systems.
    With a trading simulator, you can return to the past and feel the movement at that time.

    The technical indicators that you use will also move dynamically according to the price movements at that time.

    Trading Simulator
    You can search for a trading simulator program that can be installed on MT4 on the internet or from Market integrated with MT4. One of the simulators we use is MNZ Trading Sim.

    How to get this simulator is to enter the Market that you can find in your MT4 Terminal. In the "search" box, you can just type MNZ Trading Sim, then you will see the simulator in question then click on the icon.
    Using the Simulator
    To backtesting the simulator that you downloaded earlier, use the Strategy Tester facility in MT4.

    The way to activate the Strategy Tester is to click on the "View" button, then select "Strategy Tester".

    If you are used to using shortcuts, you can also press the Ctrl-R key on your keyboard.
    You can also choose the time range you want to use to do the simulation. To do this, you must first check the "Use Date" selection box, then you can choose what date, month and year in the selection next to the "Use Date" box.

    For example, if you choose "From: 2010.01.01 To: 2016.10.07", that means you will use recorded data in that time period (from January 1, 2010 to July 10, 2016).

    Because it will do manual trading simulations, don't forget to also click the "Visual mode" checklist so that later you can see price movements like the actual movement.

    After all parameters have been set, you just have to click "Start" and a chart will appear that displays price movements over the time span you have specified.

    The moving chart actually shows "recordings" of the price movements that have taken place, but it is "played back" so that you can make a transaction at that time.

    You can install the indicators that you want on the chart, according to the forex trading strategy indicator settings that you will simulate.

    Running Simulation
    Because this is only a recording, you can speed up or slow down the movement of the simulation chart.

    The trick is to shift the "speed bar" in Visual Mode.

    You can also stop the temporary simulation and then run it again with the "Pause" button available.
    You just have to do a transaction (of course simulation) according to the signal given by the trading system you are using.

    To make the simulation transaction, you can just take advantage of the features available at MNZ Trading Sim. You can do Instant / Market Execution or Pending Order simulations.

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