Using Historical Data

Filed under: Learn Forex Trading |

 

If you are developing any kind of forex trading system or methodology, then it is essential that you first test you system or methodology as much as you can. It order to do a rigorous and extensive test, it is essential that you use historical data from your broker’s platform.

 

When using the MT4 platform via an established broker, you have access to literally years of data on all forex currency pairs. What you can do is you can do a visual inspection via past data on the charts, or you can download the data and do a more quantitative analysis in spreadsheets such as Excel. By doing this, you can do rigorous tests on the data using your system or methodology.

 

Another thing you could do, if your system is a simple one, is to create an expert advisor (more commonly known as an EA), which you can then use to test on back data. For example, if your system is an inside bar breakout system that goes with the dominant momentum, you could create an EA with these conditions (using two moving averages as the conditions to assess the dominant trend) and use it to test historical data. If it works well, you could even do a live test and have the trading robot do all of the work for you! However, it is difficult to create a profitable EA in the long term, and I would recommend using them to only perform basic tests.

 

In summary, historical data is invaluable in determining whether a system or strategy has an edge in the market, and it is also important in determining your risk levels and ascertaining what your maximum drawdown might be. So, utilize the power of historical data, and test you systems as much as you can before taking them live. It will give you an edge that is much needed if you are to be profitable in the forex markets.

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