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Historical Tests |
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Historical tests provide traders with a rich investigative outline for establishing a system's capacity to manage the issues that influence risk. A historical test traces the performance of a particular trading system over time. The better systems utilize several years of tic data and use it in an actual re-enactment with real-life trading restrictions, thereby devising an optimum means for the trader to duplicate the results in a real-time, real-money account.
A first-rate historical test offers a wealth of information that must be analyzed by the trader in order to recognize patterns that can be used to his best advantage in favorable tests. The most effective metrics are net pips, maximum drawdown, consecutive losses, and success rate. These provide the trader with enough information to make a quick decision as to the system's merit. If the system is clearly bad, another can be selected. If the system is good or has definite possibilities, further examination is required.
The figures from a back test are an expedient way to measure a system's worth, but it is better to study the trades themselves. By studying each trade, the trader can see what occurred, even with just a few data points. A means of system optimization can be worked out utilizing this data and the metrics from the test.
Sometimes the means of best utilizing a system are fairly obvious, such as adjusting a stop, changing an exit signal, or changing the entry schedule. Others are a bit more complex, which is where an automated system proves itself to be of enormous use. For example, an automated tool called a Back Test Multiplier takes a variety of different engines, breaks them down into their constituent parts, then recombines them into several more engines. This technique creates systems that the trader otherwise would not have the time or personal knowledge to discover or exploit.
Once a system has been produced and customized via historical tests, it requires a period of live testing. Only use a system to trade a real account after confirming the conditions forecast by the historical test.
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| Symbol |
Rate |
| GBP:CHF |
1.747703 |
| GBP:JPY |
155.484239 |
| GBP:USD |
1.638403 |
| NZD:USD |
0.627050 |
| EUR:CAD |
1.545998 |
| EUR:CHF |
1.516857 |
| EUR:GBP |
0.867915 |
| EUR:JPY |
134.947096 |
| EUR:USD |
1.421994 |
| AUD:JPY |
76.394373 |
| AUD:USD |
0.805000 |
| USD:CAD |
1.087204 |
| USD:CHF |
1.066711 |
| USD:JPY |
94.899879 |
| USD:SEK |
7.613010 |
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History