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Forex Strategy Testing (easy backtesting for beginners) — Transcript

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0:00if you are just starting your trading
0:02career as a beginner or
0:03if you are not consistently profitable
0:06yet
0:07then this video will be the most
0:09important video
0:10you see all year in this video i'm going
0:13to teach you
0:13everything you need to know in order to
0:15properly back test a trading strategy
0:17and before you write off back testing
0:19like it's something that's unnecessary
0:21let me explain this to you right now i
0:23have almost a decade of trading under my
0:25belt and
0:26i would contribute 85 of the success i
0:30have
0:30to understanding how to properly back
0:33test without this skill and without
0:35knowing how to do this there is no way i
0:36would be sitting here talking to you
0:38today
0:38on this video and there's no way i'd be
0:40a professional trader and the reason for
0:42that is because the very first step
0:45to becoming a profitable trader is
0:48having a strategy
0:49that gives you profits consistently over
0:52a large
0:53sample size notice i said large sample
0:56size
0:56not over every single day i'm not
0:58talking about having a strategy that
1:00makes you money by the end of every day
1:02as much as all of us wish that was the
1:04case it's normally not
1:05something that can be produced what we
1:07can produce though
1:09is an advantage over a large sample size
1:11to give us consistent profits
1:12over a long period of time something
1:14like 100 trades
1:16there is no way to be a profitable
1:18trader without that
1:19and how do you determine whether or not
1:22a strategy
1:23can produce a profitable edge in the
1:26markets
1:27the process of doing that is called back
1:29testing that's exactly what you're going
1:30to learn
1:31after the intro and disclaimer we're
1:32going to start off with what is back
1:34testing
1:35and then i'm going to teach you a
1:36strategy that is proven over the last
1:38100 trades
1:39to give an edge of a 60 winning
1:41percentage at a one-to-one risk reward
1:44after teaching you that strategy i'm
1:45going to go through the process of back
1:46testing it with you
1:48and teach you how to back test properly
1:50throughout that process
1:51and throughout the rest of the video to
1:53make sure that by the end of this video
1:55you have everything you need
1:56in order to know how to back test your
1:58own trading strategy
2:00and complete that first step to a
2:02profitable trading career so if that
2:04sounds good make sure you're subscribed
2:05by clicking that button down below the
2:06video
2:07to the right hand side make sure you
2:09click that like button for me to help
2:10out with the youtube algorithm
2:11and if you want some extra content
2:13follow us over on instagram
2:14at the trading channel and i'll be right
2:16back to teach you everything you need to
2:17know
2:18in order to back test a trading strategy
2:22[Music]
2:32welcome back traders let's go ahead and
2:33get started with today's video and
2:35before we dive into
2:36what is back testing let's take a look
2:38at what i call the triangle to trading
2:39success you see
2:41any trader that accomplishes each of
2:44these that masters each of these three
2:46skills
2:46inevitably will be a profitable trader
2:48there's no way around
2:50it but without them it's like having a
2:53car with no gas you could have a
2:54lamborghini
2:56of a strategy but if you're missing risk
2:58management or you're missing discipline
3:00that car won't go anywhere that's like
3:01the gas for the lamborghini you could
3:03have
3:03awesome risk management but if you don't
3:05have a strategy that produces
3:07a consistent profitable edge over the
3:09markets you're not going to go anywhere
3:10and you could have
3:12extremely good discipline and you could
3:14discipline yourself right into an empty
3:16bank account if you have
3:17poor strategy that doesn't give an edge
3:19or a poor risk management plan
3:21so you need all three of these and what
3:22we're doing today is accomplishing
3:24the first one what i'm gonna do today
3:26and right after i get done telling you
3:28what back testing is
3:29is teach you a strategy that over the
3:32past 100 trades has produced a 60
3:34winning percentage and at a one-to-one
3:37risk reward
3:38and that's been over the past 100 trades
3:40again because we're not looking at
3:42super small sample sizes we want to see
3:44what a strategy is produced
3:45over a long period of time so what is
3:48back testing back testing is nothing
3:51more than going through historic data
3:53and looking for every situation that
3:55meets the rules of your strategy in case
3:57you didn't know this
3:58strategy or your edge over the market is
4:00nothing more
4:01than rules that you have to abide by
4:04every time you place a trade
4:06you create this rule set using
4:08conditions entry reason stops and
4:10targets
4:10and then you go through historical data
4:12looking at every situation that meets
4:14those rules
4:15to determine how that strategy
4:18performs over long periods of times over
4:21long periods of time
4:22for example on the pound swiss like i
4:25just told you
4:26i tested 100 instances where the market
4:29met every one of my rules
4:31and i did this 100 times per pair
4:34per time frame so i was on the pound
4:36swiss one hour chart
4:38if i wanted to trade the same exact
4:39strategy on the four hour chart on the
4:42pound swiss i would need to test
4:43100 trades on the pound swiss for our
4:46chart if i wanted to trade the strategy
4:48on the euro dollar then i would need to
4:50test 100 trades
4:51on the euro dollar on whatever time
4:53frame i wanted to trade it on so
4:56in back testing you want to make sure
4:58you have a large enough sample size
4:59to see multiple market conditions and if
5:02your strategy
5:03that you're trading right now if you
5:04don't know what it's done over the past
5:06100 trades that happened
5:07using that strategy you should not be
5:09trading it because there is a
5:11high likelihood that it lost money over
5:13those past 100 trades and even if
5:14there's not a high likelihood it did
5:16that
5:16you won't be able to be disciplined to
5:18that strategy unless you've seen it
5:20go through drawdowns during bad times
5:23multiple reasons two pack tests we won't
5:24get into that yet like i said
5:26back testing is the process of going
5:28through historical data
5:30and testing the rules of your strategy
5:32every time they happen
5:34so for the rules of the pound swiss
5:36strategy
5:37that we are going to take a look at the
5:39rules for this strategy consist
5:41of two very simple conditions
5:44the only two conditions that this market
5:46or this strategy is using
5:49is a cross of the 20 period
5:52exponential moving average followed by
5:55a close below candle for a bearish trade
5:57or a close above candle
5:59for a bullish trade that is the only
6:01conditions i will go through a couple of
6:03examples of these
6:04not back testing yet i'm going to back
6:05test with you in just a second but
6:07just to give you a couple of examples
6:08here's a losing trade why is it a losing
6:10trade
6:10and why did i place this trade in my bag
6:12testing because
6:14we have a close below the 20 period x
6:16mental moving average followed by
6:18a close below candle so all a close
6:20below candle is
6:21to give you an idea of this entry reason
6:23is a candle that closes below
6:26the low of the previous candle as you
6:28can see close of this candle is right
6:30down here at the bottom of the body
6:31and we do in fact close below the low of
6:34the previous candle
6:35the wick of the previous candle for a
6:37bullish entry
6:39what do i need to see i need to see
6:40across above
6:42the 20 period moving average as you can
6:44see we were below
6:46the 20 ema right here we then cross
6:49above
6:50the 20 ema with this candle after
6:52crossing above this candle i need to see
6:53a candle that closes
6:55above the high of the previous candle it
6:58needs to happen immediately
7:00after the close above or below of the 20
7:02ema for example
7:04this would not have been a trade reason
7:06being we have a close above
7:08our 20 ema the orange line on the screen
7:11but we do not have
7:12a close above the high of this candle
7:14afterwards the close above the high of
7:16this candle
7:17needs to be immediately after the close
7:20above the orange
7:2120 ema and let's go look at one more
7:25example and then i'll start
7:26teaching you a little more about back
7:28testing and a little less about the
7:29strategy
7:30i'll also share stops and targets with
7:31you so here
7:33again we have a situation where this
7:36market
7:37did we cross the 20 ema did we close
7:39above it yes
7:40immediately after we got a close above
7:42this is the bullish version
7:44immediately after we got to close above
7:45the 20 ema did we then get a candle
7:48that closed higher than the high
7:51of the previous candle that answers yes
7:54too
7:55so in this specific case we have a valid
7:57entry after our entry
7:59i used an atr plus 5 stop loss
8:02atr indicator have a full video on it
8:04i'll put it to the top right hand side
8:05of the screen
8:06it's just an indicator that gives you
8:07the average of the last 14 candles that
8:09were printed on the chart to help out
8:10with volatility in the market
8:12when you're using a stop loss that keeps
8:13you from being whipsawed out because the
8:15market goes super volatile at once
8:17all right so atr plus 5 on that candle
8:19would be 17 plus 5 which is 22
8:23and i'm using a 1.4 to one risk reward
8:26so we got 22 on our stop 1.4 up here
8:29and the stops and targets are as you can
8:31see this one actually hit targets which
8:32is why you see the green
8:34line on my screen so in this case
8:38that is the entire strategy it's one of
8:40the most simple strategies i've ever
8:41tested
8:42and produced some really good results as
8:44you can see once i zoom out
8:46here on the chart your red lines let me
8:49make sure you can actually see that
8:50the red lines are losses the green lines
8:52are winds as you can see
8:54going through a long period of time
8:56blues are wins and orange or losses over
8:57here as well
8:58i just started trading it and testing it
9:00a little bit differently i optimized the
9:01strategy
9:02which i'll do a video on next which i'll
9:05do a video on next but right now just
9:07pay attention to red and green
9:08being wins and losses as you can see
9:10there's periods of time
9:12where we have four losses in a row
9:16so as i said earlier it's not like
9:17you're winning every single trade but if
9:19out of
9:20100 trades i can win 60 of them
9:23and in this specific case on the one
9:25hour chart this was from
9:27the beginning of 2020 to now so let's
9:29call it six months
9:30so in six months this produced
9:34again a 60 chance to win so all we do is
9:37get our 60
9:39subtract the 40 losses from the 60 wins
9:41we have 20. that means
9:43if with a one percent risk on your
9:45account over the last six months this
9:47would have produced a 20
9:48gain on that account imagine if you were
9:51a little more
9:53a little more risk tolerant and wanted
9:55to risk two percent per trade
9:57that means in the past six months on the
9:58pound swiss one hour chart
10:00and of course you can't get every one of
10:02these trades that's another important
10:03part of back testing we'll talk about in
10:04a second
10:05i'm just showing you how profitable
10:07something as good
10:08as 60 accurate with a one to one risk
10:10reward can actually be
10:12we have forty percent gain with a two
10:14percent risk on this one pair
10:16now what if you had five pairs you
10:17traded this with and they all produced
10:19similar results every six months 200
10:23gain with a 2
10:24risk it's insane how quickly things can
10:27grow when you start adding currency
10:29pairs
10:30to something this accurate so with this
10:32being the case that is going to be the
10:34strategy that we are going to test
10:35and we actually had a live trade using
10:38this that i forgot to record which
10:39really sucks
10:40right here yesterday so yesterday we had
10:43cross below the 20 ema followed by a
10:46close below candle again close below
10:48candle just means
10:49a candle that closes below the low of
10:51the previous candle
10:52hopefully now you have an idea of the
10:54strategy again stops
10:56our one atr plus five in this case the
10:59atr
11:00was right at 20 so i did a 25 pip stop
11:02loss and we had
11:03a 1.4 to one risk reward so now you have
11:06everything you need to know
11:07about this strategy for you to go and
11:09test it yourself let's do a few examples
11:11let's actually test
11:12a few trades and i'll do it with you
11:14also i'll show you how you can
11:16record those trades again in back
11:18testing we're looking through historic
11:20data
11:20and we need to document every single
11:22time something happens i do that
11:24with green and red vertical lines on my
11:26screen the reason i do it with green and
11:27red vertical lines
11:28is because it makes it really easy when
11:30i'm plugging things into a spreadsheet
11:32to look right down here and go okay this
11:33trade happened
11:35on the 3rd of july in 2020. that makes
11:38it extremely simple
11:39for me to put into a spreadsheet and
11:41then i can mark it as a win or a loss
11:43after recording the trades on my chart i
11:46transfer them to a spreadsheet you can
11:47use a pad and a pen
11:48but they need to be documented results
11:50because you are documenting these
11:52results in order to see
11:53if over a long period of time this
11:55strategy has produced a profit and if it
11:57hasn't
11:57why would you trade it now you want to
11:59make sure it's produced a profit
12:00over a long period of time that way you
12:02have a good idea to
12:04what you can expect in the future again
12:07nothing is set in stone it's not like
12:09this means that every 100 trades this is
12:11going to hit
12:1260 but from my experience it's pretty
12:14accurate once you've tested 100 trades
12:16on what the next 100 will do so that
12:19being the case let's go through
12:20and back test a little bit of this
12:22together so i can explain a little bit
12:24further about how to back test a trading
12:26strategy
12:27all right let's go ahead and dive into
12:28back testing the strategy what is the
12:30first step to back testing
12:32always going to be it will always be to
12:35have a set of rules or
12:37a strategy that you can go through and
12:40test and these rules
12:41need to be as objective as possible for
12:43instance i'll put the rules of this
12:44strategy on the screen somewhere
12:46this strategy is extremely objective
12:48there's no way to get it wrong
12:49we're waiting on let's call it a bullish
12:51version of the strategy the bullish
12:53version of this strategy is a green
12:54candle that closes above
12:56the 20 ema immediately followed by
12:59another green candle that closes above
13:01the high of that green candle that
13:03closed above the 20 ema
13:05that's your entry it's as easy and
13:07simple and objective as possible
13:09you don't want subjectivity in your
13:11trading as much as you can help it
13:13there's no way to completely get it out
13:14but as much as you can help it so
13:15objective rules is what we need every
13:17time we're going to start back testing
13:19because we need to know what we're back
13:21testing and this process
13:23consists of taking those objective rules
13:24the strategy you just learned is what
13:26we're going to use in this case
13:27going through a specific market we're
13:28going to look at the pound swiss
13:31and we're going to take a look right
13:32back here at the pound swiss what i'm
13:34going to do
13:35is use market replay you don't have to
13:37do that you don't have to use market
13:38replay you can 100
13:40just look at your chart like this look
13:42at the far right edge of the screen
13:43and then every time you see your
13:46specific strategy happened
13:47was this a trade
13:50tell me actually see if you know the
13:52strategy already was this a trade that i
13:54would be taking
13:55absolutely not let me explain why do we
13:57have a close below the 20 ema
14:00right here with this big red candle yes
14:02but does this red candle
14:04close below the low of the previous
14:06candle
14:07it does not so with that being the case
14:09this would not be a trading opportunity
14:11and this would be this would be a loss
14:13why because we close above here
14:15and then we have the close above the
14:17previous high but before we start doing
14:19that like i said
14:20i that's how you would do it if you
14:21don't have a market replay tool i
14:22personally like to use market replay
14:24so we'll start right here and what i'm
14:26going to do is take
14:28all of this data i'm going to record it
14:29in a spreadsheet that i'm going to show
14:30you in just a second
14:31that's documenting the data and figuring
14:34out whether or not this is a profitable
14:35system we already have the rules right
14:37i've already taught them to you know
14:38obviously in this case you already know
14:40what the
14:41back testing results are because i've
14:42already told you but just pretend we
14:44haven't looked at that yet and
14:46in this case what we're gonna do is just
14:47go through historic data pointing out
14:49every time
14:50our rules our strategy happened and then
14:53writing down in that spreadsheet was it
14:54a win or a loss and i'm gonna document
14:56the time
14:57date and currency pair that i'm trading
14:59as well that spreadsheet by the way
15:02looks like this this is my personal
15:04spreadsheet that i use
15:05for bag testing as you can see what i
15:07like to look at is what pair am i
15:09trading what time what date
15:10my stop-loss and my target or targets if
15:13i'm trading
15:14two positions you can create a
15:16spreadsheet like this or you can
15:17document your trades by hand
15:19i plan to create a page you can go to
15:22and actually download the spreadsheet or
15:23either
15:24if i can't get it to the point that you
15:25can download it from that page i'll get
15:27a page where you can opt in with your
15:29email address
15:30and i can send this to you directly so
15:31if you're interested in that
15:33leave me a comment below i'll work on
15:34that page if i get enough comments
15:35saying that you guys want the
15:37spreadsheet
15:37and that way y'all can have it for free
15:40and if you're a part of the email
15:40address just understand that yes
15:42sometimes whenever i come out with
15:43youtube videos you'll probably get an
15:44email so that you can
15:46see it so that's not a bad thing and
15:48also you may get a couple of promotional
15:50offers
15:50a month of me saying hey we got some
15:52space open in our training programs but
15:54that's all
15:55other than that you get a free
15:56spreadsheet out of it so let's go ahead
15:58now
15:59and start the back testing process all
16:01we're going to do
16:02is move the chart forward and as we do
16:04we're going to record every time
16:05our rules are met with this specific
16:08strategy
16:08this is the process of back testing
16:11waiting on that
16:12push above the 20 ema and close above we
16:15have it here
16:16we had the push above here we had the
16:18close above here
16:20if we were to place this trade we would
16:21have a stop loss
16:23of 11 plus five which would have been
16:26eight
16:2714 15 excuse me 16 excuse me 11 plus 5
16:31is 16
16:32would have been a 16 pip stop also we
16:33can tell right now without even looking
16:35we would have been stopped out of this
16:37trade the very next candle so what do we
16:38do
16:39well if we're going to record that data
16:41we know that we're on the pound swiss
16:45we know that the time of this trade
16:46again this is why when i'm back testing
16:49in reality i always put a horizon i mean
16:51vertical line excuse me on the screen
16:53we know the time is six o'clock and it's
16:55on the third day
16:56of july in 2020 so i would just write
16:59all that down the time
17:00is six o'clock this is on
17:047 3 2020
17:07my stop loss in pips
17:10is 16 and my target would have been a
17:14little bit higher than that at a 1.4
17:16but i don't need my target in this
17:18specific case on my spreadsheet because
17:20i have a stop loss of 16 which means
17:22that i lost
17:23negative 16 on that position so
17:26that's exactly what it looks like when
17:27you're plugging it in we'll do nine more
17:29i'm going to do 10 trades with you guys
17:30and then what we can actually
17:32do is see the results of those trades
17:34and obviously 10
17:35is not a big enough sample size but you
17:37would do this for 100 trades
17:39i'll speed this up a little bit with the
17:41play button
17:42here all right we have a push below the
17:4520
17:46right here correct did this next candle
17:49close below
17:50the candle that closed below the 20
17:51period moving average no this is a green
17:54candle so obviously
17:55it did not close below this so that's
17:57what we're looking for with this
17:57strategy
17:59candle closes below the 20 ema for a
18:01bearish version
18:02then the next candle closes below the
18:04low of that candle this candle would
18:06have had to do something like this
18:08in order to be a valid entry and we will
18:12continue
18:14this candle would have been another
18:15situation where
18:18that we have a close below the 20 ema on
18:20this red candle
18:21but nothing below that we have a close
18:23above right here but nothing above that
18:25that's the last time i'm gonna go over
18:26that you should at this point know what
18:28we're looking for
18:34at this point do we have a trading
18:35opportunity the answer that hopefully
18:38you said yes and the reason i hope you
18:39said yes is because we have
18:41this red candle closing below the 20
18:43period moving average
18:44does the next red candle close below the
18:47low of this red candle
18:48yes it does as i said completely
18:50objective rule set the close of this
18:52candle or the open of the next one
18:53they're going to be the same exact price
18:55is the entry after the entry we use an
18:58atr
18:58plus five this is 15 so it'd be a 20 pip
19:02stop loss
19:02and we have a 1.4 to one risk reward
19:04let's see if we hit targets here
19:06on this specific trade
19:10nope we're stopped out again so if we
19:11stop out again for 20 pips what do i
19:13need to do
19:14record that right i need to make sure
19:15that i'm recording it every single time
19:17documenting the results of this specific
19:19strategy
19:21and before i do that what should i have
19:23done first i probably should have marked
19:25this with a vertical line
19:26to make it super simple so 7 8 20
19:29on eight at eight o'clock seven eight
19:31twenty at eight o'clock so this needs to
19:33be eight
19:34and it was on seven eight two thousand
19:362020 i lost 20 pips so 20
19:39and negative 20. now we can continue
19:41testing
19:43throughout the rest of this data so
19:45let's go ahead and click the play button
19:47and start again
19:51all right if i delete this you can see
19:52that we actually have a trade here
19:54why do we have a trade because we were
19:56below the 20 period moving average on
19:58this candle correct
19:59correct we closed above the 20 movement
20:01on this candle correct
20:03correct and after we close above the 20
20:05period moving average here
20:06do we get a close above candle the
20:08answer to that is also
20:10true so would that be the case we would
20:12have a long position here
20:14this long position would have a stop
20:16loss of one atr plus five
20:18which is 17 plus 5 which is 22. i think
20:21this is the trade we looked at a little
20:22bit ago
20:23so i know this one's going to win
20:261.4 sorry if that was a creepy laugh 1.4
20:29all right let's see if we hit targets or
20:30get stopped out on this specific
20:32scenario
20:35pushing down putting you through the
20:37real emotions of trading and then
20:39finally
20:39coming up to hit targets so this would
20:41be a win of 31 pips with a stop loss of
20:4322
20:44and we need to put our vertical line so
20:46that we can tell what the date and time
20:47is so let's go ahead and do that
20:48vertical line right on our entry candle
20:50now that we have that it'll make it
20:52really easy to go here
20:53and now the reason i do this and what
20:55you can see in the corner over here
20:56is the fact that i don't even have to
20:57change screens i can now see that this
20:59trade was on 7 8
21:01twenty at seventeen hundred so i know
21:03it's the pound twist i should just be
21:04copying and pasting these
21:06but i'm not pound swiss at seventeen
21:09hundred
21:12and pound swiss at seventeen hundred on
21:14seven eight
21:16this was a 22 pip stop loss followed by
21:18a 30
21:19one pip reward i do believe
21:2231 yes okay so we have that trade
21:25recorded let's go ahead and continue
21:27pushing the chart forward and see if we
21:28get more trades
21:33and guys before we keep going let me
21:34explain a little more about the strategy
21:36the reason there's no trades in here
21:38in this area because it's just as
21:39important for you to understand when not
21:40to trade as it is for you to understand
21:42when to trade with a specific strategy
21:44we have a close below here we don't get
21:45a close blow candle immediately
21:47afterwards
21:47we have a close above right here on this
21:49green candle there's not a close above
21:51candle of that candle
21:53immediately afterwards we have a close
21:54above candle here no close above
21:56immediately afterwards
21:57we have a close below candle whenever i
21:59say that i mean closing below and above
22:01the 20 ema and whenever i say no close
22:03below candle
22:04i mean we don't have a candle that
22:05closes below the low of the candle that
22:07closed below the 20 ema
22:09so in that case we have no trades up to
22:11this point
22:12here is the next time we cross back
22:14above the 20 ema
22:15i need immediately following that a
22:17close above candle
22:19if i don't get that then i can't trade
22:20the next candle like this one
22:22that wouldn't be an entry it needs to be
22:23immediately following the first candle
22:25that closed above the 20 ema on a
22:28bullish version of this strategy
22:30we'll push the market forward see if we
22:32get some more trades
22:36here we have a trade as you can see we
22:38have a market that pushed up
22:40and closed above our 20 ema does the
22:42very next candle
22:43close above the high of that candle yes
22:45it does perfect so now
22:47we can put our position tool on we can
22:50do
22:50our stop loss which is going to be
22:54five pips plus the atr of that current
22:56candle
22:5717 plus five is 22 yet again seems to be
23:00a popular stop loss huh
23:02so we're gonna have about a 31 pip
23:03reward here
23:05at a one point four to one risk reward
23:07let's see
23:08if this wins and the market pushes up
23:12eventually hitting
23:13that target so what would we do green
23:15vertical line
23:16on the entry candle showing me exactly
23:19the time and date that i need to record
23:21in my spreadsheet
23:22pull up my spreadsheet make sure i can
23:24see that time and date
23:25and now i'm ready to record it's at 1900
23:30and it's on 7 14. it was a 22 pip stop
23:33and a 31 pip reward
23:35so there we go we have all that recorded
23:37i'll record pound swiss when the video
23:39is over i'm
23:39like writing that out i feel like it's
23:40just going to cause us to waste a little
23:42bit too much time let's hit play
23:44see what the market does
23:47no entry here until let's look at this
23:52we did not have an entry here because
23:55after this candle we did not get a close
23:57blow candle we didn't have an entry here
23:58because this isn't a close above candle
24:00and this is not a close above candle
24:02as you can see there's no clothes below
24:04or above candles directly after
24:06a candle that closes above or below the
24:0820 ema and then we have this candle that
24:10the blue lines on now
24:12followed by a close below candle so what
24:14are we going to do
24:16we are going to put a short position
24:17tool on or measure however you can
24:19whatever your platform allows you to do
24:21and our
24:23atr on that candle is 15 means we have a
24:2620 pip stop loss exactly
24:28and a 1.4 1 risk reward we hit play
24:34we see that that is stopped out so in
24:36this specific case we have a loss of 20
24:38pips
24:39on this trade so what would i do red
24:42vertical line we have our red vertical
24:45line right there
24:46and that's on 716 at 1700. we pull up
24:50our spreadsheet
24:51we have 1700
24:54and we have that on 7 16 2020
24:57this was a loss of 20 pips 20
25:00minus 20. all right now we can continue
25:04go ahead and shrink this and hit play
25:06and actually i don't even have to hit
25:07play i can move this out of the way
25:09you can see that we've already ran into
25:10another entry candle how do we do that
25:13well
25:14we have first off this entry here where
25:17the market pushes
25:18back up closes above the 20 ema and then
25:21has a close above candle directly
25:22afterwards
25:23with that being the case what will we do
25:26take our
25:27entry right here we would have a stop
25:32of one atr plus five is 17 that's 22.
25:35we would have a target at a 1.41 risk
25:37reward which does get clipped right up
25:40here as you can see so with that being
25:42the case this would be a winning trade
25:44let's go ahead and record this in the
25:45spreadsheet
25:45first off putting our green vertical
25:48line
25:49on our entry candle which would have
25:51been right here and now we can actually
25:53pull over the spreadsheet
25:55and plug in the numbers which was at 12
25:57o'clock the trade was
25:58and it was on 7 16 2020 this was a
26:02win which had a 22 pip stop and a 31 pip
26:05target
26:07and guys i've went through about five
26:09six of these now i think you get the
26:10idea of how to back test that's exactly
26:12how you would do it
26:13i'm gonna plug in the rest of the
26:14numbers we're gonna take a look at the
26:15results i'll do that on my own though so
26:17you don't just have to sit here and
26:18watch me
26:19backtest hopefully now you have an
26:20understanding of the strategy and
26:22how to actually backtest the strategy
26:24stay tuned though because we're going to
26:25go through
26:26how you would optimize this strategy to
26:28trade it on the best currency pairs
26:30to only trade it in the best times that
26:32it works for instance you may notice
26:34that every trade you placed over the
26:36past 100 at 1 pm
26:38lost for whoever knows why and if that's
26:40the case you may not want to trade this
26:41strategy
26:42ever at 1 pm right so we're gonna go
26:44over all that momentarily
26:46right now let's jump into the
26:47spreadsheet after i get through testing
26:49the rest of these tricks i'll see you in
26:50a second all right traders so here's the
26:52testing results throughout the past 10
26:54trades using the exact strategy i taught
26:56you on the pound switch on the one hour
26:58chart
26:59as you can see we have everything
27:00recorded we need in order to optimize
27:02the strategy
27:02for trading it for the best times for
27:04instance at
27:066am like i said earlier did it lose
27:08every trade at 6am
27:09that's one thing you can optimize for i
27:11also using this technique
27:13having this stuff in a spreadsheet you
27:15can test multiple different pairs
27:16combine them and see how much better
27:19your results
27:20become in terms of a smaller drawdown or
27:22even a higher
27:23roi return on investment if you start to
27:25add different currency pairs to this and
27:27you would do the same exact process
27:29of testing each of these plugging them
27:31into a spreadsheet 100 trades not 10
27:33on every pair and every time frame
27:34you're going to trade and then putting
27:36them all in a spreadsheet together
27:38to see what the max drawdown was over
27:40the past 100 trades
27:42it it's invaluable information to have
27:45in order to optimize
27:46your trading strategy and get the most
27:49out of it which is what we all
27:50should want now i can't dive as deep as
27:53i would like to
27:54with this in this specific video but if
27:56you are ready for some more advanced
27:58training
27:58we do offer the eap training program and
28:01we actually have
28:02some spots available right now in that
28:03program i'll put some testimonials on
28:05the screen from traders who have
28:06recently graduated from the program
28:08and in that program you'll get a full
28:10training course not only on back testing
28:12but on the actual strategies i use
28:14on a day-to-day basis in the forex
28:16market then
28:17a course on backtesting you'll get this
28:19spreadsheet and a full course on
28:21discipline
28:22and how you can be more disciplined to
28:23your trading plan that also comes with
28:25three to five
28:25email alerts each and every week not to
28:27use as signals but
28:29in case you want to see exactly what i'm
28:31seeing in the markets
28:32and to help you better understand the
28:34strategies that you're using in the eap
28:36training program and that you're
28:37learning
28:37from that program with this program you
28:40also have
28:40what i call priority email which means
28:42that anytime you have questions it'll be
28:44me
28:44directly that you are talking to and
28:46i'll be answering any of those questions
28:47to the best
28:48of my ability in a timely manner so if
28:50that's something you're interested in
28:52the ep training program is listed below
28:54oh this video taught you everything you
28:55need to know about how to backtest is a
28:57very quick recap
28:58what we have the first step of
29:01backtesting a trading strategy
29:02is to make sure you have a set of
29:04objective rules you can test the
29:06historical data
29:07the next step is to go back through 100
29:09trades
29:10which the the amount of time that it
29:12takes for you to get 100 trades depends
29:14on a ton of factors
29:16in your strategy i have no idea how long
29:18you have to go back to get 100 trades
29:20start with going back a year if you get
29:22less than 100 trades
29:24go back further and i'm talking about on
29:25a one-hour chart on a four-hour chart i
29:27would go back three years
29:28test if you get less than 100 trades go
29:30back even further and test again
29:32the main mission here is just to make
29:34sure you get 100 trades but
29:37the first step having those rules second
29:38step go back through historical data
29:40and document each and every time it
29:42happened when those rules took place
29:44and at the end of 100 trades see did you
29:47have
29:47a positive expectancy did that specific
29:50strategy make money for instance
29:51with the last 10 trades on the pound
29:53swiss i know this is a large not a large
29:56sample size and it's a small sample size
29:57but out of the last 10 trades
29:59we produced a very similar result to the
30:01last 100
30:02a 60 winning percentage and it ended up
30:04with a 60
30:05winning percentage and trading with a
30:07two percent
30:08risk per trade a nine point eleven
30:11percent return
30:12with a three to four percent max
30:14drawdown so that's very good results
30:16and other than the roi and the max
30:19drawdown if i had a
30:2060 winning percentage over 100 trades
30:22that would be something i would
30:24definitely
30:24start demo trading personally and
30:26eventually put into my trading plan
30:29so that's the second step record the
30:31data and optimizing comes into play
30:33directly afterwards
30:34when you start combining the testing
30:36results from one strategy
30:38from this strategy on from one pair to
30:40another so get those testing results on
30:42multiple different pairs
30:43and then combine them all in one
30:44spreadsheet to see what your
30:47possible maximum drawdown is what your
30:50estimated maximum drawdown will be
30:52and to see what your total roi should be
30:55after
30:55you trade this specific strategy for 100
30:59trades on all the pairs that you're
31:00planning to trade with it so i hope all
31:02of that made sense if not rewatch the
31:04video a couple times
31:05back testing as simple of a subject as
31:06it sounds like can get a little
31:08complicated especially
31:09when we dive into optimizing which i
31:11might do a full video on optimizing if
31:12you'd like to see that
31:14put a comment in the boxes below just
31:16comment below
31:17if you'd like to see a full video on
31:18optimizing a trading strategy with that
31:21said there'll be a video somewhere
31:22around my face
31:23that i think will also be really
31:24valuable to your trading make sure
31:25you're subscribed and click that like
31:27button if you enjoyed this video
31:29took me about three and a half four and
31:30a half hours to make this so
31:32if you liked it please click that like
31:33button and i will talk to you in the
31:35next
31:35video see you soon

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