MTrading MetaTrader 4 is a popular tool for backtesting Forex strategies because of its default in-built Strategy Tester feature. But keep in mind that while using the right software can indeed be helpful to you in trading, no strategy or indicator will work unless your broker is reliable.
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You can carry out both manual and automated backtesting using our MetaTrader 4 platform, using the required assets and timeframes. However, as creating an automated strategy in MT4 requires programming skills, many traders prefer to manually backtest their trading strategies, as this helps to build knowledge and skill within the financial markets. The first thing you will need is a trading journal so you can journal your trades as you go through your backtest. Then, on your MT4 or MT5 charts you will want to choose your market and time frame that you want to carry out your backtest. Backtesting of automated trading strategies (Expert Advisors) is done in the MT4 Strategy Tester window. You can open it from the top menu (View - Strategy Tester) or by pressing CTRL+R. STEP 4.2 Check if Tick Data Suite 2 is loaded.
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Meta Trader 4 is no doubt the most popular trading platform which is supported by more than 90% of the forex brokers. But MT4 too has its drawbacks. Lack of features for manual backtesting is one of them.
Since back testing of strategies is as important as forward testing, we traders have two options. Make do with what we have on MT4 and look for a 3rd party software for testing purposes or find a workaround to do the testing on MT4 itself. Both options have their pros and cons.
3rd Party Software
To say the least, there there ain’t many choices. Forex tester 2 is more like the monopoly in this niche. I will give you a free download link for the forextester below.
There are however other software to help you achieve the same functionality within MT4 itself. One of them is the Simple Forex Tester (Free download link below.)
3rd party software integration with MT4 is a neat solution because that way you can backtest strategies that use custom proprietary indicators as well.
The F12 function key method
MT4 has a built in function to shift the chart by 1 candle at a time. With this method you may only paper-trade the strategy and use handwritten trade journals to analyze your results. Although it comes with so much hassle and disadvantages that it hardly simulates a real trading condition, it is doable.
Disadvantages of the F12 method include:
- Zooming out or in on a chart while backtesting ruins the session, as the rightmost candle on the chart changes when zooming.
- If the chart was mistakenly dragged while drawing objects for example, this could reveal forthcoming candles on the chart. In which case testing becomes a pointless exercise.
- Indicators that repaint don’t do so because its a historic chart that has already formed.
- Even with all the issues above, can only be tested for strategies that explicitly use a candle close to produce entry signals.
- There is no way of analyzing price action on other timeframes in the middle of a testing session. Well you could switch timeframes, just not in the context of backtesting.
- Even if you went through all the hassle, there is no easy method to calculate and analyze the results. You would have to do it all manually and literally put pen on paper.
Using Custom Expert Advisors and Scripts
Backtesting Trading Strategy Mt5
This is my favorite method for manual backtetsting. Although it too has a number of drawbacks, it completely runs on MT4 terminal using the strategy tester console of MT4 and emulates real trading environment with capabilities to place orders and even produces reports just like it does for EA backtesting.
Here’s how you get this working. Fill up the form below and I will send you the necessary files. The files are divided into two folders. Files in one folder goes into the ‘Experts’ folder and the other set of files goes into the ‘Scripts’ folder in your MT4 installation folder.
If you don’t know where your expert and script folders are located, please follow the instructions given on this guide.
Backtesting Trading Strategy
After the installation run the EA on the strategy tester window of the MT4 (Ctrl + R) just like you would do testing on automated EAs. But make sure that you have enabled the ‘Visual Mode’ though. Use the order placement and closure scripts (files which you already copied to the scripts folder) from the navigator window to enter and exit trades.
Most importantly play around with it and Have Fun! But make sure you pick just the strategy that performs well and stick to it.
There you have it, the various options if you want to successfully backtest your strategies manually simulating real trading environment of the Meta Trader 4 terminal.
Why do 95% of traders fail in this business. Not having a strategy and discipline to follow the strategy. That’s because they don’t have enough faith in their strategies. Why? Its never been backtested…
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