Apiary Fund Blog

The Importance of Backtesting in Trading

[fa icon="calendar"] Jul 31, 2019 6:01:00 AM / by Lukas MacMacKen

With all the difficulties that a new strategy can pose and the ever fluctuating markets in the foreign exchange market, backtesting a strategy when you start a new one or when looking at a new pair is important. You don’t want to have the win to loss ratio ratio or the best take profit and stop loss range for a pair with your specific strategy present itself only after you have entered a trade and had it run its course. Backtesting a strategy on a pair gives the ability to best suit your trading, this is the primary reason Apiary Fund puts such high stress on the idea of backtesting. Backtesting gives the opportunity to help a strategy grow and find ideal profits for your trading.

First thing to look at for backtesting is how to use it and all that is can show. To start your backtesting, add your indicators and other tools you will be using for your setup. From there, you can go to all the previous price movements and find the triggers that would get you into a trade. Then, you can track the range of movement from the entries to find ideal take profit and stop loss points. These ranges that can be found are similar to those of the Apiary Fund price and time cycles based on the Apiary Fund’s pivots. This strategy of identifying the target and exit points of a trade can help get your strategy rolling across the different pairs and different time frames to maximize your returns no matter how you grow in your trading.

Once you have take profits and stop loss measurements for the pair and time frame, you can find the win loss ratio by plugging in the determined values for take profits and stop losses. You can then play out the trades in the previous market. This will give you your approximate win to loss ratio. With your proportions of wins to losses, you can find the appropriate lot size or amount of trades you need to push through the market to make your goal in terms of returns. Whether you are looking to make a certain percentage of your account a day or a certain dollar amount, knowing the winning percentage along with what you are trying to make, you can calculate the lot size that will get you there.

No matter what you are trying to accomplish in the end, backtesting a strategy has many uses and should be used. As you expand into different pairs to trade or look into different time frames for different profit margins, or if you are just looking at a new strategy all together, backtesting is vital. Backtesting does only offer a rough estimate of how a strategy will work. On Alveo, Apiary Fund does offer the ability to have up to five simulated accounts. The simulated accounts are a great way to do a final check after the backtesting of your strategy before moving onto a funded account.

Topics: Apiary Fund, Trading Strategy, Trader Tips, backtesting

Lukas MacMacKen

Written by Lukas MacMacKen

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