What is Backtest EA?
Backtest EA is a process of testing trading strategies based on historical data, when the backtest process takes place, which will show you how the strategy has been implemented in the past, using all the data. available. Many traders who use EA believe that a system that has worked well in the past will work well in the future. Therefore, Backtest is really an important process for those who use EA. In the following article, I will guide you in detail how to use Backtest EA in MT4 software. If you are interested in this issue, do not skip the following article.
Before going into specific issues about Backtest EA, you need to understand what EA is. If you are new to this tool, please read our following article:
You should note: the Backtest EA process will have to do many times. Therefore, before doing so you should try Backtest on the test account (demo). If Backtest is successful, at least it will give you hope for Backtest on real accounts. Not only do they save you money, they also give you insight into how EA handles different market situations. There is no guarantee that it will work 100% in live accounts, but the implementation on the demo account will help you know the disadvantages of the strategy. If you are an IT person, you can fix those errors yourself. In case of buying from other coders, you can ask the coder to edit it in the following upgraded versions.
Monetary quotation data - must first have if you want BackTest EA
Currency quotation data is an important factor when wanting BackTest. A standard backtest program on the MetaTrader 4 terminal only needs to use data from the MT4 historical center and is usually sufficient for non-expansion Expert Advisors (EA). However, with an expanded EA, closing trades within 1-15 pips, even the smallest price change can make a huge difference. So, to understand the specific impact, the more data you have, the better your results will be.
Notes when performing BackTest
Before BackTest, it is important to set the spread fee correctly. For example, you should not test strategies with very low spreads, maybe try a spread of 3 pips or more. If the test works well, it means it can work stably at a lower difference. Besides the difference, you should also set the most accurate time frame.
Another useful feature is backtest in visual mode. This will take more time, but the chart will run along with the trading strategy, so you can see clearly how entry and exit are like.
If you get an error, you can access the Log at the bottom of the strategy tester. In case you are not an MQL developer, please share this bug report with your EA developer to fix the above.
How to analyze the results after BackTest?
After completing the backtest, you can download the report results by placing the cursor in the strategy tester and right-clicking and selecting download or Save:
When the report is downloaded, you can save it, each report template will show the transactions made with the settings, how to enter the order, exit the order, stop the loss, etc. It's best to save each report in different settings, and analyze all types of reports to find the best method. Note the backtest in the demo account does not mean that they will work well in real trading environment. So the direct BackTest is still the only way to check and find the remaining errors in the strategy.
Guide to backtest in Metatrader (MT4)
To BackTest you first need to have an EA. You can learn how to code them, or buy from some trusted vendors.
Once Expert Advisor is available, open the Strategy Tester dashboard by clicking View and then selecting Strategy Tester as shown below:
A control panel appears at the bottom of the MT4 platform:
Then you follow the instructions according to each ordinal number marked to use Backtest EA as below:
- Please select the EA you want to install from the list called "Expert"
- In the "Symbol" section select the currency pair and the time frame you want to backtest in the "Period" section on the right.
Note: please download historical data for your currency pair Backtest before proceeding, you can read instructions on how to download data in Metatrader if you do not know how to do it.
- Select the Model value. There are three options available:
"Every tick" allows you to have a more accurate backtest, but it is very slow because MT4 will have to read the Opening price, High price, Low price and Closing price from the history data set and generate random prices within each Candles, starting from the open price until the close.
"Open Close Only" There are only a few parameters to run backtest if your strategy is medium term, you don't care about the movements inside the single candle and you don't need to read the high and low prices. This method will be faster if you need to run many tests to optimize
"Control Points" do not recommend this method because they will only run based on the nearest time frame.
- Choose the spread fee according to the rate of the platform you trade. Ideally, you should choose a Spread that is 2 times greater than the spread you have to pay.
- Uncheck the "Use date" line as it will reduce the scope of your test.
- Uncheck the "Optimization" line if you run backtest for the first time.
- Click the Start button and start running backtest.
In the example below I am running the backtest for the Expert Advisor called "High Potential Days", using the M1 timeframe for the EUR / USD pair for the entire history loaded in my data history.
After running there will be a section called "Graph" that appears in the chart section. In the Online Results section, you have all the parameters and performance in your strategy, like the images below:
The above is a whole guide on how to BackTest EA. In fact, backtest is the perfect tool to check EA quality. Many developers make small bugs (bugs) that can be solved only by backtest. The more you need to pay attention to the data, the more likely the BackTest will be accurate. So before BackTest make sure you have enough data to perform, you okay. Good luck!
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Author: Tin Nguyen
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