As 90-95% of new forex traders lose money within the first 3-6 months this article serves as a guide for new forex traders by asking five questions that the forex trader needs to know prior to back-testing your system currency.
1. What type of data being used (or used)?
I know this sounds strange, especially if you have the experience of other markets such as equities as it is usually only one type of data source available. However, in the currency market can have up to 4 different data types: supply, demand, mid and indicative. Each has its own nuances.
To learn more about the data types then visit the article written about the perils of indicative prices. Since this is going to save me having to repeat the information again and boring to those who have already read. Therefore, if you know you have indicative prices then you know you're in good results! However, if you have any of the other three have to be careful on how stop and limit orders are placed.
For example: If we have the story of quotation and we were looking to put a stop to buy entry at 0830 EST according to the day's high, then we know that the offer price does not reflect exactly what the current price of our system should be. It would have noticed that if you put a stop to buy entry at the same exact price that day would have gone higher than early - that would have entered 4 or 5 points before the high or low the day was touched (the exact same amount as the spread your broker offers!).
This brings me to the next most important question ...
2. What is to spread its offer of a brokerage on the coins you are sunbathing, the evidence?
You need to know this because this can help establish the configuration of slip in each currency.
As an example in question 1 pointed out. We found that our method of buying up the day job does not exactly why we bought at the price bid high, not high-Ask price - the price we have when we place our order. Therefore, we enter a scenario that represents the sliding of the spread that was exhibited by this trade in this currency. But knowing what the purchase price is only half the problem ... How do we know how much to buy?
3. What scope provides your broker?
If we know what the purchase price of our currency that we have to inform our broker on what quantity to buy to fulfill the order. We only know what quantity to buy by the margin offered by the brokerage firm. Most brokerage firms offer 100:1 leverage, however, some firms offer mini accounts with 200:1 leverage, others only use 50:1. Find the required margin.
4. What restrictions does your broker to impose?
Now, do not just mean margin restrictions and extended as mentioned above. These are important in its own right, you need to know the details. This is probably the most important question of all as the fine line between success and failure can be found in the details. Now you can have this questioned by one of two ways:
1. You can find out through experience (generally the most expensive way unless done through the demo account!), O
2. Ask your broker (the cheapest and best).
Why is this important? I hear you ask. Well say we have a system that trades any gaps that might form on Sunday at 1700 EST, but his agent does not open until 1730 EST. You need to factor this restriction in your system, or switch to another system entirely. Or you can have a system that has 10 pip stops, but finds that your agent only let you place 15 pip stops from your initial entry price. Again, you must change your system to see if it works well, or pull the system (or its agent of change)!
In fact one of the restrictions imposed by the most devastating of FXCM do not accept stop entry orders if price not the case with trade in stopping the entry price! FXCM honor and "take" the loss of their jobs left open, but if the liquidity is there and the price has shot straight through your stop price then you lose. This can have disastrous effects on the results of your system as you wonder about the transactions in which he performed well - "I would have entered FXCM?". You can read some of the quirks I use when placing entry stop orders on FXCM that could be of great benefit to you to help you possibly get around this problem. Restrictions by your broker are only half the success of their systems, it is also necessary to obtain information about another major constraint ... yourself.
This brings me to my final point ...
5. What restrictions do you have?
This is an issue of vital importance. Most people test their systems and fall in love with the results, but when your trading system is that they have lost the account and that most of the best signals occurred while they were asleep!
As the forex market is a 24-hour market, you need to put in place restrictions on your system that realisticly conducted by you during the course of a normal trading day. There is no use operating a trailing stop method that changes in the staging point in time when you are asleep and can not be done.
I hope this article has made you aware of some of the important things that must be known before testing your system.
1. What type of data being used (or used)?
I know this sounds strange, especially if you have the experience of other markets such as equities as it is usually only one type of data source available. However, in the currency market can have up to 4 different data types: supply, demand, mid and indicative. Each has its own nuances.
To learn more about the data types then visit the article written about the perils of indicative prices. Since this is going to save me having to repeat the information again and boring to those who have already read. Therefore, if you know you have indicative prices then you know you're in good results! However, if you have any of the other three have to be careful on how stop and limit orders are placed.
For example: If we have the story of quotation and we were looking to put a stop to buy entry at 0830 EST according to the day's high, then we know that the offer price does not reflect exactly what the current price of our system should be. It would have noticed that if you put a stop to buy entry at the same exact price that day would have gone higher than early - that would have entered 4 or 5 points before the high or low the day was touched (the exact same amount as the spread your broker offers!).
This brings me to the next most important question ...
2. What is to spread its offer of a brokerage on the coins you are sunbathing, the evidence?
You need to know this because this can help establish the configuration of slip in each currency.
As an example in question 1 pointed out. We found that our method of buying up the day job does not exactly why we bought at the price bid high, not high-Ask price - the price we have when we place our order. Therefore, we enter a scenario that represents the sliding of the spread that was exhibited by this trade in this currency. But knowing what the purchase price is only half the problem ... How do we know how much to buy?
3. What scope provides your broker?
If we know what the purchase price of our currency that we have to inform our broker on what quantity to buy to fulfill the order. We only know what quantity to buy by the margin offered by the brokerage firm. Most brokerage firms offer 100:1 leverage, however, some firms offer mini accounts with 200:1 leverage, others only use 50:1. Find the required margin.
4. What restrictions does your broker to impose?
Now, do not just mean margin restrictions and extended as mentioned above. These are important in its own right, you need to know the details. This is probably the most important question of all as the fine line between success and failure can be found in the details. Now you can have this questioned by one of two ways:
1. You can find out through experience (generally the most expensive way unless done through the demo account!), O
2. Ask your broker (the cheapest and best).
Why is this important? I hear you ask. Well say we have a system that trades any gaps that might form on Sunday at 1700 EST, but his agent does not open until 1730 EST. You need to factor this restriction in your system, or switch to another system entirely. Or you can have a system that has 10 pip stops, but finds that your agent only let you place 15 pip stops from your initial entry price. Again, you must change your system to see if it works well, or pull the system (or its agent of change)!
In fact one of the restrictions imposed by the most devastating of FXCM do not accept stop entry orders if price not the case with trade in stopping the entry price! FXCM honor and "take" the loss of their jobs left open, but if the liquidity is there and the price has shot straight through your stop price then you lose. This can have disastrous effects on the results of your system as you wonder about the transactions in which he performed well - "I would have entered FXCM?". You can read some of the quirks I use when placing entry stop orders on FXCM that could be of great benefit to you to help you possibly get around this problem. Restrictions by your broker are only half the success of their systems, it is also necessary to obtain information about another major constraint ... yourself.
This brings me to my final point ...
5. What restrictions do you have?
This is an issue of vital importance. Most people test their systems and fall in love with the results, but when your trading system is that they have lost the account and that most of the best signals occurred while they were asleep!
As the forex market is a 24-hour market, you need to put in place restrictions on your system that realisticly conducted by you during the course of a normal trading day. There is no use operating a trailing stop method that changes in the staging point in time when you are asleep and can not be done.
I hope this article has made you aware of some of the important things that must be known before testing your system.
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