Now that you have a good understanding of the trading plan and how the price moves up, down and sideways, you are ready to put the trading plan into action.
Assignment: Create a backtest of 1 market completing 1 year of trading.
What is a backtest? It is a review of historical charts in the past, and a record of each set up which meets our conditions for a trade and the results from that set up. The backtest should be recorded in Excel, and a sample trade log/journal can be found below.
There are 2 ways to do this. One way is to purchase Forex Tester.
It’s a trading simulator which gives you the ability to practice by taking trades in a fraction of the time needed to trade the live markets. The entire backtest for 1 year can be completed in a weekend. You will also gain valuable experience of actually running through the trades from start to finish, including the trade management. It will give you a better understanding of the personality of each market, and it will develop your confidence as a trader so make the experience as real as possible
The cost is around $300. Click on the image to buy the software. We believe that this software is well worth it, but if you prefer not to use Forex Tester that is perfectly fine. You can do the backtesting directly in MT4.
The other way to complete the backtest is right in MT4.
Consult with your mentor to decide a market and year to backtest, and after analyzing the chart based on your strategy, run through the year recording all the setups which result in trades in your trading journal. Once you have completed your backtest, upload your saved Excel book to complete your assignment.
Once you have decided which method you will use to do your backtest, it is time to set up your trading journal. The journal will be a record of your completed backtest, as well as your experience of going through each trade. Keeping detailed records is critical to identify your strengths and weakness, reviewing your performance, and get an overall picture of your experience.
Below is a link to a sample backtest which you can use or reference to create your own. As we will continue to grow our database of backtests for each Team’s strategy in various markets, consult with your mentor on which market and year you will backtest.