Bab 5 Test Your Trading System
Building a trading system that you’re comfortable executing is no easy feat. However, once you’ve found the right mixture of indicators and risk management that you’re comfortable with it comes time to test. Only with the test of your trading system will you know if the newfound system is worth repeating.
Backtesting
Backtesting has always been one of the popular means of testing if a trading system works. Traders spent countless hours to subject their devised system of trading to historical set of data to check if the system works.
First of all, you need to know how your trading system would have performed in the past, before you test it in the present. Backtesting is the process of testing a trading strategy on historical data, to find out how it would’ve performed in the past.
The fastest way to test your system is to find a charting software package where you can go back in time and move the chart forward one candle at a time. When you move your chart forward one candle at a time, you can follow your trading system rules and take your trades accordingly.
Forward Testing
Forward testing is a simulation of actual trading and includes following the system’s logic in a live market. We usually call it “paper trading” as the trade entries, exits and stops are documented and analyzed. No real trades are executed.
Forward testing needs to be very logical and should
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