Simply put, yes, you need back-testing software. Let’s say that after the assessment of a technical indicator’s results, you engineered a trading strategy. Apart from deciding on the establishment of a long position, you meticulously planned the entry and exit positions. However, you’re rather uncertain whether it can be an approach for profit generation; a part of you thinks it won’t survive upon exposure to various market elements. In such a case, be grateful that you installed back-testing software.
Reasons for Back-Testing
The employment of back-testing software highlights the benefits of risk-free trading in the foreign exchange market; you are granted the opportunity of going on a dry run with regard to a preferred trading strategy. With back-testing, you can be introduced to typical activity in a hypothetical market prior to proceeding to the actual market. Alongside, the issue of the need for practice and wise trading techniques are addressed; pure luck shouldn’t be the only basis of trading.
The list of reasons:
- Come up with better strategies for the placement of trailing-stop orders, limit orders, and stop-loss orders
- Determine strengths and weaknesses of trading strategy
- Determine which price charts and technical indicators can complement your trading strategy
- Get familiarized with the different impacts of reality-based economic conditions and market elements
- Identify mistakes during trading execution
- Prevent actual losses and manage risks
Manual vs. Automated Back-Testing
Although back-testing software programs are available, some traders insist on manual back-testing; they prefer the traditional method since they intend to see the strategy in the works. And, while they are aware that the process on hand can be time-consuming and mentally demanding, they assume that manual evaluation is “more secure”.
Back-testing manually is recommended for novice traders for a thorough understanding of trading strategies. However, for experienced traders, using programs is practical. Granted that the selected back-testing software is made with quality and is distributed by a reputable forex tool provider, its back-testing approaches may be reliable.
The Rewards of Back-Testing
Back-testing software programs come with rewards since they let you safeguard your trading career. They give you the assurance of workable trading plans, regardless of typical obstacles in the forex market. You are handed the chance to inspect eventual actions; you learn to devise an effective response to particular market elements, economic conditions, and market situations. And, basically, if you back-test a strategy, you know how it would play out; you can prepare yourself for different reactions while ensuring that you cut down possible risks.
Go one step further with these related books:
- Forex For Beginners
- A Three Dimensional Approach To Forex Trading
- Understanding Price Action: practical analysis of the 5-minute time frame
- Quantitative Trading with R: Understanding Mathematical and Computational Tools from a Quant’s Perspective
- The Death of Money: The Coming Collapse of the International Monetary System
- Economics of Monetary Union