Friday, June 15, 2007

Back Testing 1 hour interval data EUR/USD with Metastock


Forex Back testing
: A couple of months ago I was really interested in back testing trading strategies but lost interest after several attempts proved to be very unprofitable. I have since started using Metastock with esignal to backtest moving averages. Metastock has an optimizer function that will go through all combinations of moving averages and return the most profitable combinations. My goal will be to first to find the most profitable moving averages for the EUR/USD. I will try to correlate the moving average pairs to produce the most profitable 3 moving averages.

I've already started performing #3 and I currently have Metastock performing backtesting on over a years worth of 1 hour interval data. It's very CPU intensive and will take about 4 hours. It's currently half way done and so far the best EMA pair is the 7/75. The 7/75 EMA's actually have some impressive results over the last year on the 1 hour EUR/USD chart.

Here is an exact description of the backtest:

Buys/sells when a moving average of 7 periods goes above/below a moving average of 75 periods.

I also have it factoring in the broker fee and have set the results to buy/sell 1 lot.

Here are the results:

70 profitable trades with average profit of $355.86 per trade.
Highest profit was $1020 and the most consecutive profitable trades was 12

15 unprofitable trades with average loss of $972.67 per trade.
Highest loss was $2180 and the most consecutive losing trades was only 2

Over 1 year, if you followed this trading plan by buying or selling 1 lot each trade, you would have profited $10320.00.


asr observations:
0. win/loss ratio = 25,000/15000 = 1.65 , intersting with this small 1.65 win/loss ratio able to make 10320/year because there is lots of wins 70 vs. 15 losses ..

1. you need 2000 for 1 lot and margin anothe 2000 => total 4000 to begin with
1. need to find what is exit strategy ( hope Metastock will have it )
2. if you hit loss as first trade you lose 2000 then should bring in 2000 so it makes total 6000
3. 85 trades total , 6 pips/trade commision => 500 as commision , so your net profit is 9700
4. total trading days in a year is 250 , in that 85 trade days that is 1/3 of the time in trading days , you need kind of automated trade station human can not do it
5. the test was run on 1 hour chart, in real time with 5 min charts you may trigger some noise signal ( 7/75 EMA siganl ) and due to it you may lose some more and your actual net may be 7000 instead of 10320

6. If this is so well tested why we all pay 10% commision to mutuval funds just to see 15% annual returns vs. 400% shown above ..

1 comment:

Unknown said...

everyone who have backtested data should have known the fact that what went right in the past may not go right in the future. You are just optimizing your strategy to fit the data of yesterday. This is called curve fitting and the fact you have to find out is WHY your strategy works in this scenario. Can this advantage be taken over into another time frame or another currency?