How to Use the MT4 Strategy Backtester

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Video Transcription:

Hello traders. Welcome to the advance MT4 course and the third module tips and tricks. In this video, I’m going to show you how to backtest a strategy using the MT4 strategy tester.

Now, there’s a couple of things you need to understand before we move forward with this video. And the most important thing is that the backtest that are done with the MT4 strategy tester are not 100% accurate.

This means that if you backtest a strategy or an expert advice with it and you have excellent results, you can’t say that that is how your account would have grown had you been trading with that same strategy. And the reason that it is not 100% accurate is the spread. Remember that in Forex, the spreads are not fixed, and they are always oscillating or they are always changing and the MT4 backtester uses the actual spreads to backtest the strategy. And of course, there’s the market environment and a couple of other reasons why these backtests are not 100% accurate, but we are not going to get into that. The only thing that you need to understand is how to backtest a strategy to get the overall picture of the winning ratio of the strategy itself. And the goal of the backtest is to filter out the bad strategies and to only forward test and trade small the good strategies so you can actually start making money.

So those are the steps. You backtest a strategy with the strategy tester, and then if you have good results, you forward test it and you trade it with a small account. And if you have good results forward testing it then you know you have a winning strategy in your hands and you can start trading it with actual size. So let’s go to the MT4 platform and I’ll show you how it’s done. Now, here’s the MT4 platform, and if you go to this icon right here that has a magnifying glass and a piece of paper below it, and you click on it, you will get the MT4 strategy tester window popping up right here, okay?

MT4 Strategy Backtester

MT4 Strategy Backtester

Screen Shot 2014-11-24 at 17.47.47

Now, before we move any further with the actual back test of the strategy, we need historical data to test it on. And to get historical data, you go to here on tools, and you go to the history center. And when this window pops up, you need to choose the currency pair that you want to test the strategy on and the time frame. In this case, we have chosen the EUR/USD and the one-hour chart, or the one-hour time frame, and once you have chosen it, you click download. Okay? And here’s a warning that you are going to download data from the MetaQuote Software Corporation, etc. You just click “okay” and the download will start. So I’m going to pause the video right now and wait for the download to be over so we can move forward.

Okay so the download is now over, and right here on this tab where it says “Expert Advisers”, you will find all the strategies. And in this case, we are going to use the MetaQuotes MACD Sample. This is a by default strategy on the MT4 platform, but the main point of this video is to teach you how to backtest it, okay? So this will do. Remember that we downloaded the historical data on the EUR/USD, so we choose the EUR/USD on the symbol tab, and the period is the one hour because we downloaded one-hour EUR/USD historical data. And the model, this is very important. You need to choose every tick, the most precise method based on all available list timeframes to generate each tick. And of course, the spread is the current spread, and this is one of the reasons that this is not 100% accurate but it gives you a number of raw perspective on the winning ratio of the strategy. Now, we are going to backtest it from March 2014 until today, okay?

And once we have everything set up, we just click “start” and the strategy tester is going to start backtesting the strategy and it’s going to generate a graph right here. This is actually the winnings or the balance and equity chart of the strategy. When you hear that sound, you know that the backtest has concluded and you go to the report tab, and now, you can see that this strategy netted a total loss of $291.46 and we had an absolute dropdown of $394.63. In the total period of backtest, the strategy had 75 trades, 37 short positions, 38 long positions.

MT4 Strategy Backtest Results

MT4 Strategy Backtest Results

The largest profit was five dollars, and the largest loss was $246. So you know that just by reading this report, you know that we have a losing strategy in our hands so we are not going to move forward with the forward testing on this one. And this is basically how you backtest the strategy. You just upload the expert adviser on your MT4 platform and you use the strategy tester on the platform.

Adam

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Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

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