How to Test Your System

Any source of currency trading information will tell you that you will need to test a currency exchange system before going live but how precisely can you do that? The truth is that you should do it in more than one way. Back Testing

Back testing a foreign exchange system involves scrolling through the historic charts trying to find eventualities that would have caused a trade under your system and recording what would have occurred if you had opened a trade at that time. It is very important to apply the guidelines of your system in a pragmatic way when back testing. So for example, if you are using an EMA crossover system, you might spot a crossover on a past chart that was followed by a two hundred pip rise. Most systems need you to do that. In that time the price might have modified. If there were, you have to record a loss although there was doubtless a 200 pip profit.

Lastly, consider where you would have closed the trade. If your system aims for a hundred pips profit per trade, you would have closed at that point and missed out on the remainder of the price movement. If your system involves closing half of a successful trade, you may figure out what your real profit would’ve been, applying that method.