- If possible, always perform backtests with constant lot size
If possible, always perform backtests with a constant slot size.We always backtest with lot size = 0.01. This has certain advantages over a variable lot size. Unfortunately, some Expert Advisors are based on dangerous strategies, where there is often no possibility to set a constant lot size and would also contradict the strategy. Advantages of a constant lot size are clearly in the evaluation and the comparability of the results. If, however, results are available depending on the balance, mainly the simulation results of the latter time range stand out and cover visually and statistically the results of the older time ranges. This makes it impossible to develop a “feeling” for the Expert Advisor's algorithm and additionally makes statistical analysis much more difficult.
- Use “currency” and not “pips” for analysis
Analyze the results mainly in the unit “currency” and not in “pips”. In currency all the costs that the trade cost you are already taken into account, in pips they are not. This is especially important for scalpers and night scalpers.
- Robustness and stability of strategies
To check the robustness and stability of strategies, they should be tested with different brokers (spread, slippage, cost of the broker). This way you can find out to what extent a strategy depends on the broker, respectively on the costs of a broker, the spread, the slippage or other circumstances. Furthermore, a strategy may even work with other highly correlated currencies, or at least not fail completely.
Highly correlated currencies
- Possibilities and limits of backtests
Note that backtests are simulations and can only approximate reality. Therefore, it should be understood that there is no such thing as a perfect backtest. Every backtest will contain errors. What matters is the presence of a large correlation between simulated and real results. Therefore, after you have made real trades for a certain period of time, you should always simulate them with backtests. Only if the data here correlate with each other, you can trust the backtests for past or future time ranges.
The shorter the time interval between opening and closing a trade and the fewer pips a trade covers, the lower the modeling quality.
- Backtest of Night Scalpers
Overnight trading also reduces modeling quality, as the spread can become very large at night, depends heavily on the broker, and is highly variable. In addition, slippage can also increase sharply. Therefore, especially night scalpers often have a particularly poor modeling quality, so that the results must be viewed with caution.