Back-Testing Stock Index Trading Systems - Testing Stock Index Trading Systems
Generating Stock Index Trading Signals with a Stock Indices trading system is one of the easiest method to trade Indices, it is the best way that a Stock Indices trading beginner can attempt to determine the direction of the Stock Indices market trend with a good level of accuracy, & with a little back testing on demo practice account so that to gradually increase the level of accuracy of this Stock Indices trading signals strategy
The best way to back test a Stock Indices strategy is by following these two steps:
- Stock Index Paper Trade
- Stock Index Demo Trade
Stock Index Paper Trading- This method of testing a Stock Indices trading system involves placing your trading system on the Stock Indices trading charts, then take the Stock Indices trading chart back to a particular date, 3 months back for example, & then using this Stock Indices trading chart history to determine where your Indices strategy would have given buy, sell and exit Stock Index signals. Write down these points and the profit per Indices trade transaction on a piece of paper & then calculate the total profit after you have recorded a good number of Stock Index trades such as 50 paper trades Stock Indices transactions and determine if your Indices trading method is overall profitable, win ratio, loss ratio & the risk: reward.
This is an ancient method of testing Stock Index systems that was used by traditional investors when there was no online exchange markets or computers for that matter, trader would use something like the A3 or A2 paper, graph format paper & plot the trading charts manually (Imagine plotting the charts on your Indices trading platform by hand every day or every hour, would you be ready to do that? I doubt) Those investors were hardworking than most, some were so used that they still continue to paper trade the online Stock Indices market & plot the Stock Indices trading charts on paper, anyway for our paper method example, just a sample data of 50 Index trade transactions is all we need.
A good Stock Indices trading tool to use to back test your Indices system is known as the MetaTrader 4 Step by Step Tool. Found on the MetaTrader 4 Index trading charts toolbar of MetaTrader 4 Index platform, If you want to find the Stock Indices trading charts toolbar in the MT4 platform it's at the top of the MT4 trading software. If it is not: Click View (next to file, top left corner of MT4)>>> Tool-bar >>> Charts. Then click the Customize button >>> Select Step by Step >>> Click Insert >>> Close.
MetaTrader 4 Software Chart Tool Bars - How to Trade Stock Indices For Beginner Traders
MetaTrader 4 Chart Tool Bars - Step by Step Button for Testing Stock Index Trading Systems Explained
Once you get this MT4 Index tool you can move your Indices trading chart backwards, & use this MT4 Index trading tool to move the Stock Indices trading charts step by step while at the same time testing when your Indices system would have generated either a buy or sell Stock Indices trade transaction, & where you would have exited the Stock Indices trade transaction, then write down the amount of profit/loss per Indices trade transaction and out of a sample number of Stock Index transactions you would then calculate the overall profits/losses generated by the Stock Indices trading strategy.
If your Indices trading strategy is profitable on the paper then, its time to demo Indices trade & testing if the it's profitable on the real market as it's on paper method. This is the process of testing or back testing a Stock Indices trading system.
Maintain a Stock Indices Trading Journal to keep track of profitable Stock Indices trades, & determine why these Stock Indices trades were profitable. And also keep a log of all losing Stock Index trades, determine why these Stock Indices trades made a loss and the avoid making these same mistakes the next time you trade using your Indices trading strategy.
Tweak your trading system until you get a good risk: reward ratio, with the Stock Indices trading signals that you generate. Aim for a good risk: reward of 3:1 & a win ratio of above 70% is a good ratio, with good Stock Indices money management even a Stock Indices strategy with a win ratio of even 30% i.e. Less than half of your Indices transactions make profit you can still make a profit. You might want to read this topic to know what the table below is all about: Risk : Reward Ratio.
Risk to Reward Ratio Chart of Money Management Strategy - Indices Trading Strategies Explained
A manual Stock Indices trading system is still the best way to generate Stock Indices signals compared to automated Stock Indices trading systems, a manual Stock Indices strategy is a better method and is also much simpler to implement.
However, other traders prefer automated Stock Indices trading systems and for those then they can check the information on this page MQL5 Expert Advisors and automated Stock Indices trading systems.
You can also view our extensive list of Stock Index trading strategies topics that provides you with various methods of buy & sell technical analysis using a number of diverse technical methods, go to Stock Indices Strategies Section.
