Forex Focus by Patrick Nouvion
Backtesting And Forex
Does backtesting produce valid results for
foreign exchange trading? Here’s a study
that answers this question.
For many years, backtesting and simulations
have been banished from my toolbox. I only use these tools as debuggers
and I never look at the results. I have told
people that backtesting is useless without
actual historical tick data, and only a dreamer
would believe all these simulation reports. I
just got my hands on historical tick data from
my broker, so I thought I would do some
testing. I decided to check to see if I was
wrong in steering people clear of backtesting
and overoptimized systems. Or was I right in assuming that without historical tick data, simulations were
a waste of time?
The first thing I did was choose a system to test. The moving
average convergence/divergence (MACD) sample that comes by default with MetaTrader is available for free and everyone
who uses MetaTrader has access to it. Using the default
settings on the MACD sample, I ran a simulation on a oneminute
chart of EUR/USD from January 1, 2002, to April 1,
2007, using every tick option (Figure 1). The results are
displayed in Figure 2.