Stocks & Commodities V. 25:9 (16-18): Forex Focus by Patrick Nouvion

Stocks & Commodities V. 25:9 (16-18): Forex Focus by Patrick Nouvion
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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.

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