Back testing a trading strategy is a vital part in Trading, only when a trader follows a predefined rules, he can make money in the longer run. Though there are many back testing tools available for back testing, due to limitations in coding knowledge not every trader can use these tools to backtest. But the most liquid and most traded segment in India is Index options, if one can build a robust strategy with options, he can easily make consistent returns. Users just need to sign up with their platform for free using your mobile number and then the home page provides you with list of most popular options strategies that you can backtest for Nifty and Bank Nifty.
Every option trader knows about Short Straddle, long straddle, strangles etc, but how do we confirm with data, whether these strategies really makes money. Let me select Short Straddle for an example.
How to Back-test Options Trading Strategy ? - Algo Trading in India |
The Risk Profile interface enables you to estimate risk probability based on risk curves. These curves can be plotted for specific potential simulated trades or just for a specified underlying. The tutorial below will explain how to view, set up, and interpret the risk profile. Watch the tutorial below to learn more about probability curves and price slices, what their values mean, and how to set up their parameters. You can select one of predefined periods or set a custom time interval. To set a custom period, enter the start and end dates in the appropriate fields to the right.
The specific feature of the tester is that it additionally downloads some data preceding the specified period to form no less than bars. This is required for a more accurate testing and optimization. For example, if you test on a one-week timeframe, two additional years are downloaded.
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If there is not enough history data for forming additional bars it is especially significant for the monthly and weekly timeframes , for example, when specifying a start of testing close to the start of existing history data, then the start date of testing will be automatically shifted.
An appropriate message is added to the Strategy Tester journal. This option allows you to check the results of testing in order to avoid fitting to certain time intervals. During forward testing , the period set in the Date field is divided into two parts in accordance with the selected forward period a half, one third, one fourth or a custom period when you specify the forward testings tart date.
The first part is the period of back testing. It is the period of Expert Advisor operation adaptation. The second part is forward testing, during which the selected parameters are checked. Strategy tester enabled the emulation of network delays during an Expert Advisor operation in order to provide close-to-real conditions for testing. A certain time delay is inserted between placing a trade request and its execution in the strategy tester. From the moment of request sending till its execution the price can change.
The Importance of Backtesting Trading Strategies
This allows users to evaluate how trade processing speed affects the trading results. In the instant execution mode, users can additionally check the EA's response to a requote from the trade server. If the difference between requested and execution prices exceeds the deviation value specified in the order, the EA receives a requote.
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Please note that delays work only for trades performed by an EA placing orders , changing stop levels , etc. For example, if an EA uses pending orders, delays are only applied to order placing but not to order execution in real conditions, execution occurs on the server without a network delay. In this mode, all orders are executed at requested prices without requotes. The mode is used to check how an EA would perform in "ideal" conditions. The Random Delay mode allows testing an Expert Advisor in conditions maximally close to real ones.
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The delay value is generated as follows: a number from 0 to 9 is selected randomly - this is the number of seconds for a delay; if a selected number is equal to 9, another number from the same range is selected randomly and added to the first one. You can select one of the predefined delay values or set a custom one. The platform measures the ping to the trade server and allows you to set that value as a delay in the tester so that you are able to test a robot in the conditions that are as close to the real ones as possible.
For more information about tick generation, please read the appropriate section. Profit calculation in pips can speed up the testing process while there is no need to recalculate profit to deposit currency using conversion rates and thus there is no need to download the appropriate price history.
Swap and commission calculations are eliminated in this mode. Please note that margin control is not performed in this mode. You should only use it for quick and rough strategy estimation and then check the obtained results using more accurate modes. Specify the amount of the initial deposit used for testing and optimization. The deposit currency of the currently connected account is used by default, but you can specify any other currency. Please note that cross rates for converting profit and margin to the specified deposit currency must be available on the account, to ensure proper testing.
Only symbols with the "Forex" or "Forex No Leverage" calculation type can be used as cross rates. Next select the leverage for testing and optimization.
The leverage influences the amount of funds reserved on the account as the margin on positions and orders. If you have the source code of the selected Expert Advisor, you can click this button to switch to its editing in MetaEditor. Use this menu to manage tester settings: save sets of settings for various Expert Advisors in ini files and access them in a couple of clicks later.
From the same menu, you can quickly select the last used programs, last chart settings and testing periods. Furthermore, you can quickly access any of the previous optimization results , as well as the settings with which the result was achieved. Almost all specification parameters can be overwritten: volumes, trading modes, margin requirements, execution mode and other settings.
Set your own trading account parameters when testing strategies, such as trading limits, margin settings and commissions. This option enables the simulation of different trading conditions offered by brokers. The visual testing mode allows to visualize exactly how the Expert Advisor performs trade operations during testing on historical data. Each trade of a financial instrument is displayed on its chart.
Input parameters allow you to control the behavior of the Expert Advisor, adapting it to different market conditions and a specific financial instrument. For example, you can explore the Expert Advisor performance with different Stop Loss and Take Profit values, different periods of the moving average used for market analysis and decision-making, etc. Parameter sets.
You can at any time return to the current settings of your MQL5 program by saving a set of its parameters using a context menu:. You can specify custom trading account settings during strategy testing, such as trading limits, margin settings and commissions.
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In this section, you can set the maximum number of open orders and positions, which can simultaneously exist on the account. Additionally, you can configure sessions during which the program is not allowed to trade. The section allows configuration of margin reserving rules and position accounting systems to be used in testing:.
Risk management model : OTC and Exchange, netting or hedging. When this level is reached, all orders are canceled and all trading positions are closed. These levels can be indicated in money and in percentage. In the former case, they are determined as the account's Equity value. Release fixed profit at the end of day — this option becomes available only if the option "Use daily fixed loss" is selected. If it is enabled, the accumulated profit will be released and thus included in the free margin at the end of the day.
Otherwise this profit amount will remain blocked. This section provides control over commissions charged on all trading operations:. To apply commission settings of the current trading account, enable the option "Use predefined commissions". Enable the option to use current trading account commission settings instead of custom settings specified below.
Specify the name of the symbol for which you are configuring commissions. Several settings can be added for each symbol. Thus, you can set up multi-level commissions that depend on the deal volume or turnover. Commission can be charged immediately after each trade, or it can be accumulated during the trading day or month and then charged in one operation:. The selected option determines the entity whose volumes are indicated in the "From" and "To" fields: deal or turnover.
For instant commissions, trade direction can be set manually. The following rules shall apply for Close By deals:. The minimum deal volume turnover from which the commission will be charged. The ranges must not overlap. Otherwise, the commission will be charged for all the ranges, in which the operation falls. The maximum deal volume turnover from which the commission will be charged. The ranges must not overlap.. Commission fee amount.
Commission units depend on the commission calculation method selected in the Mode field. Minimum commission amount. Value units depend on the selected calculation mode in the base currency, group currency, points. If you do not want to limit the minimum commission amount, set the 0 value.
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Maximum commission amount. The maximum commission value cannot be less than the minimum commission. If you do not want to limit the maximum commission amount, set the 0 value. Thus, if you need to check an Expert Advisor under different conditions, there is no need to create a separate custom symbol and download its history.
This can be done by changing standard symbol settings.