A platform is the first thing a trader requires when trading digital assets. That platform could be provided by their broker, or they can use independent software like MetaTrader 5. MT5 is independent software that provides traders with financial assistance when trading different assets.
MT5 very quickly gained numerous followers thanks to its user-friendly website, various technical tools, analytical tools, and more. Plus, MT5 withdrawal is also the easiest and quickest among all the different trading platforms.
However, one of the biggest advantages that MetaTrader 5 serves to its users is the ability to backtest their trading strategies. This helps the traders to ensure that the set of tactics they will be using is profitable. Hence, in this article, we will be going over how to backtest your strategies, things to avoid while backtesting, and more.
How to Backtest Your Strategies On MT5
Backtesting strategies on MT5 can be done in three simple steps.
Step 1: Set the Test
The first thing that you need to do is open the tester on the MT5 platform by clicking on the view tab and selecting the strategy tester option. You could also open it by pressing the Ctrl+R keys on your keyboard.
A window will appear at the bottom of the screen that will allow you to set your desired type of strategy. The options that appear permit you to select a timeframe, preset date ranges, deposits, and any algorithm that you may want to use.
Apart from this, the platform also allows you to forward test your data by splitting it into two parts. The platform will optimize the first part of your data and then run those settings on the second part of the data. This enables the user to know if their strategy will yield high profitability rates or not by comparing the similarities between the two sets of data. The more similarities there are, the higher the profits.
Step 2: Start the Test
Once you have chosen the desired settings for your test, you have to click the “Start” button. This will open the STV (Strategy Tester Visualization) window, which will show you the backtest of your trades in the form of a chart. You can use the sliders to increase or decrease the speed of your test for a clearer view.
Step 3: Review
After the completion of your test, you can click on the “Backtest” tab on your window to preview the results of your test. The results will show recovery factors, profit factors, gross loss, gross profits, expected payoff, and more in the form of percentages and numbers to give you an idea of how credible your approach toward trading is.
Things to Avoid While Backtesting On MT5
For you to get the most out of backtesting your trading strategies, you must avoid these common mistakes that hinder the final results of the test.
Changing the Strategy in the Middle of the Test
It is often very tempting for traders to change their strategy in the middle of a test, as they see a new advantage. However, changing is strongly advised against as it brings invalid results to the table.
When a trader changes his tactics in the middle of the test, they can’t be fully aware of how good the original rules were or how much better the new rules are. This is because the test done is partial, as it is against two different strategies. Hence, it is advised to finish a test with one set of rules and then move on to another.
Moving Too Fast Through the Charts
Another common mistake made by some traders while backtesting is that they move too fast through the charts. Opting for this way to read the charts possesses a danger of moving past the entry point on the chart. This results in a hindsight bias, as the trader is already aware of how the trade will turn out.
This means that the data will be biased. Hence, it is advised to find a testing speed that allows you to get a lot of testing done without revealing much-advanced knowledge about the trade.
Stopping Too Early
Winning successive trades in a row at the beginning oaf the test can tempt the trader to stop his testing and call it a success. However, doing this has a potential danger of your strategy hitting an abnormal profit streak, which can lead to losses in the future.
The option of backtesting provided by MT5 is surely one of the most effective tools that help traders check the success rates of their strategies and calculate their profits. This in turn boosts their confidence and enables them to have an upper hand over those who do not verify their strategies.