How to Backtest Forex EA's in 2022 (Guide) – FueledByForex

How to Backtest Forex EA's in 2022 (Guide)

How to Backtest Forex EA's in 2022 (Guide)

5 minute read

There's a million different Forex Trading Systems out there and almost all of them are complete garbage. Since the start of time, Forex traders have chased after the "holy grail" trading system only to be let down over and over again. What they don't know about is how backtesting in Forex works.

Some strategies that work in the short-term often fail in the long term. Why waste 6 months of your time just to lose your hard earned money when I can teach you how to figure it out in 15 minutes or less?

In this guide I'll show you how to skip to the chase and determine quickly whether a Forex EA is profitable or not. We'll be learning to backtest at 99% modeling data, instead of the ~75% modeling data that the standard MT4 terminal comes with.

So, what does that mean?

It means you'll be able to backtest a currency pair with confidence as if the software was in a live market. You will have accurate results that won't be skewed and you will skip the headache of forward testing on a demo or live account.

Let's get to work.

Step 1: Acquire your EA strategy for testing.

It's easy to find a forex trading strategy, it's tough to find a profitable one. Your first step is acquiring one that is at least formatted as an EX4 file which can be backtested. My only recommendation is to flex your googling abilities and to not pay for any strategies before we backtest them against currency pairs. If you do, make sure they have proof of a verified trading record from a third party such as Myfxbook.

Step 2: Download & Install Tick Data Suite (It's got a free 2 week trial that we'll be utilizing)

Visit the website at enter your name and email and you'll get something like this delivered:

Go ahead and hit the download button, follow the steps and then install the software. Enter your product key from your email and it will complete. Open the software up and you'll move on to the final few steps.

Step 3: Download Tick Data

You should see a screen like this after the software opens. This is where you'll be downloading your 99% accuracy data for backtesting currency pairs. Figure out what pairs run best on your chosen Forex EA software. Click the download button next to that pair and it will begin to download the data. Once it is complete, open up your MT4 terminal. If you don't have MT4, now is a good time to download it.

This data is important because it goes beyond the limitations of what comes stock on MT4 terminals.

Step 4: Configure Your Backtesting Settings

Open up your MT4, make sure that your EA is in your experts folder. (File -> Open Data Folder -> MQL4 -> Experts -> Paste your EA)

Open up the strategy tester. (View tab -> Strategy Tester)

Here is what your strategy tester should look like.

Follow these steps to make sure you don't miss any important parts.

-Select your EA of choice from the drop down box.

-Choose your symbol (EURUSD in this example).

-Model should be set to EVERY TICK.

-Check off use date, choose your time period. Rule of thumb is at least the past year.

-Check off the "use tick data" box.

-Choose your time period. For this example we use H4 which is the 4 hour timeframe.

Configure your expert properties, you should have an idea of what this needs to look like based on your EA's directions on how to use it. If none exist, leave the stock settings.

Step 5: Configure your Tick Data Settings (Spread)

The first tab we will investigate is the "SPREAD" tab. It looks like this.

My advice here is to enable variable spread and leave the settings stock. This is important because the software will do backtesting with the actual spreads at the time, rather than just utilizing a fixed spread that never changes. This will help increase the accuracy of your backtesting and show you how high volatility and high spreads might impact the strategies profitability.

Step 6: Configure your Tick Data Settings (Slippage)

The next box we will check out is the "SLIPPAGE" box.

You'll want to ENABLE slippage so that you recreate live market conditions. Orders will not fill perfectly and they will have both negative and positive slippage. I leave the settings stock here and if you are interested in modifying them then just don't. Lol.

Step 7: Run your backtest!

This is the moment we've all been waiting for. You'll have a green bar loading across your screen and once it's completed your results will be complete. Head over to the graph tab and check out what happened.

If it looks like this, then congrats! You have a WINNING STRATEGY!

You'll want to be on the lookout for price going to zero or having too much drawdown (typically more than 30% is bad, 50% is dangerous and 100% means you lose everything). Any backtest also has more in-depth data that you can investigate under the "REPORT" tab. This will show you winning and lose trade percentages and most importantly the profit factor. The rule of thumb is you want to be above 1.00, ideally closer to 1.5 or 2.0. Anything below 1.00 is an indicator that the strategy loses money.

That's it! Congratulations you are now officially an EA backtester of the highest (99%) quality! You can now rapidly test through different EA's and help filter out the absolute turds that would either waste your time or lose your money. Good luck out there!

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