How to Test Forex Strategies

Forex Strategies Chart

When you start trading on the forex market you are told that you have to test forex strategies to ensure that they work correctly.  It is important that you know how to do this and what to do when the forex strategies do not work.  You also have to consider what went into your decision on the strategy that you are thinking of using.

Why You Chose the Forex Strategy?

Before you test a strategy you have to consider why you are using the strategy.  Are you going to use it because someone recommended it or are you going to use it because you are comfortable with it?  It is important that any forex strategy you consider is one that you are comfortable using.  If you are only using it because you know someone who has had success with it then you could lose money.

A strategy that works for one trader may not work for another.  This is due to traders having different trading styles and being comfortable with different aspects on the market.  Before you look at testing the strategy you have to consider whether this is really the right strategy for you.

Where to Test Forex Strategies

The most commonly used platform for testing forex strategies is the demo account.  However, there are some traders who use a micro or mini account to do this.  It is not advised that you use an account where you can lose money while testing a strategy.  The traders who use the micro or mini account are generally experienced traders who are testing a small change in their strategy.

New traders should always use a demo account for testing their strategies.  The demo account offers you a real time simulation of the market without the risk of losing money.  All trading is done with virtual currency.  One problem you have to be aware of is the difference in order execution between demo and live accounts.  The order execution on the demo account is instant, but you are unlikely to get this with any live account.

How to Test the Strategy

Once you have a demo account with a broker you are going to use you need to know how to test your strategy.  This is actually very easy and you simply have to trade according to the strategy.  To properly test the strategy you have to stick to it and not divert.  If you divert from the strategy then the testing has no point.

It is recommended that you test the strategy on a demo account for at least a month.  This allows you to go through all the monthly fundamentals and the dips in the market.  If you can make a profit or break even with the strategy after this time then you can consider trading with it live.

What If There Is A Problem

A lot of new traders are unsure about what they should do if there is a problem with the strategy.  When you are testing the strategy you need to find any weak points that can cost you money.  When you find these weak points you have to consider how to strengthen them.  Once you have strengthened the points you have to start the testing month again.

 

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