Now that you have made an algorithm of indicators, understand the rules you will trade by and the news you will avoid, it is time to put it to work back testing to measure the success rate.
Using the software to simulate the back testing results is the way to go. This is the one that I use and it has worked well for everything No Nonsense Forex related. (It will even be useful in the future for Oils, precious metals and index ETFs)
The first step is to test your algorithm against these 5 pairs first to know if you have something good or not. These five pairs are as follows:
If your algorithm can fair well across these pairs then you are ready to test it across the entire 28 pairs (which would leave 23 pairs left to test).
The No Nonsense Trader recommends a 5 year period of back testing. Be sure to include all the testing requirements such as news avoidance.
Once you have gone through all the hard work of back testing and have found an algorithm that you think works well all 28 pairs, congratulations but you are not ready yet.
You are going to perform forward testing this algorithm on a demo account to see what your real time results trading the live markets.
The forward testing process will be done for a 6-month period on a demo account. I recommend recording all of your progress by registering your demo account with www.myfxbook.com
By registering your forward testing information with this website you’ll be able to keep tracking of all of your wins/losses/profits and many other key details to understand your trading.
The reason you want to know your trading statistics is because this is going to help you know if it is feasible for you to work with a proprietary firm. A proprietary firm has many trading rules you must abide by such as win rate, draw down rate, and profit deadlines.
It is very important to become dedicated with your trading statistics because there is no point of joining a prop firm if you cannot achieve the trading targets and stay within the rules of their trading drawdown limits.
Continued in Part 7