Load the required amount of historical data in the time-frame selection window, selecting the number of days you need.
The minimum period of time you need to test is 1 year, because it is important to test your trading system under various market conditions:
- winter – spring – summer – autumn,
- periods of holidays.
In this event, your testing will be objective.
How to conduct testing in practice:
- Without seeing the ‘future’… It is important to conduct testing on historical data without seeing the ‘future’. It means that you shouldn’t see the future developments in the instrument chart when you make a decision about a trade. Your mind may deceive you and you will not execute a trade if you see that it will be loss-making. It means that testing should be very close to real-life trading.
- Put all the results into an Excel table… Testing makes sense only if its results are saved for analysis. That is why try to spend enough time to note down all details of a trade. Entry points, exit points, results in ticks, result in dollars and the trade volume.
- Analyze the testing results… Based on the received data, calculate how your deposit was changing and build the capital curve. What was the maximum drawdown of your system during the test? How much did the profit exceed the risk? Take into account that results of your trading system could be twice as worse in real-life trading. It means that your trading system should show a big margin of safety during testing. Reality will be different, since testing has ideal conditions for trading.
- Conduct a test one more time… It is desirable to conduct one more test of the same historical period in one month’s time, when you forget the results of the first test. Then check how different the results of both tests are. It is important that the results are only slightly different and trading by your system was unambiguous. If your trading system is too complex and the test results are very different, then it is better to simplify and elaborate it.
A high-quality test will take some time, but it is worth it.
- Trading on the demo account for 6 months. After you have completed testing on historical data, you would feel an urge to start making money at once. But you shouldn’t hurry. Testing on historical data is the most favorable variant of trading. You feel no distress, you take your time and you trade with demo money in the Excel file, you do not take risks and are not nervous. Real-life trading is much different. You should gradually approach real-life trading and start from the demo account.
It is like a sportsman who gradually increases the lifted weight during training in order not to injure himself.
The same is true for a trader who needs to start from the demo account in order not to injure his state of mind due to a money loss. You can register demo accounts in the trading and analytical ATAS platform: Crypto Sim (for cryptocurrencies) and ATAS Sim (for futures and stocks). There are no time limits for working on these demo accounts.
How long should you trade on the demo account? The same principle works here as for the testing: the longer the better. Six months could be enough since namely this period allows covering various market states. One or two months are definitely not enough.
Having traded for six months, conduct analysis, build the capital curve, calculate the maximum drawdown and compare the results with the historical data testing. If the results are identical and the capital curve gradually moves up, everything is fine, your system is stable and you can move further. If the capital curve is not smooth and has significant valleys and peaks and doesn’t coincide with the historical data testing, you should look for the reasons, correct mistakes and continue to trade on the demo account.
Trading on the demo account is already very close to real-life trading. The only thing, which is not in the process yet, is the psychological factor. The following step will help to train psychology.
- Trading with a minimum volume… If the historical data testing and demo account trading were stable, you can start trading with real money. However, there is an important rule:
DO NOT HURRY !!!
If you start trading with big volumes and risks, you will hurt yourself as a weight lifter by a heavy weight. You should do everything step by step. Select instruments with a minimum tick price and start training on them. Namely these instruments should be selected for the historical data testing and demo account trading, since every instrument has its movement character and your trading system may work good on one instrument and bad on another.
For example, currency micro futures from the CME could be good for this stage: