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How to test your forex strategy?
Written by: PaxForex analytics dept - Tuesday, 17 February 2015 0 comments
The most obvious tool a forex trader needs to possess in order to successfully navigate through the world of forex is a proper trading strategy. Without one a forex trader merely takes a guess about the direction of a trade which is more a fifty-fifty gamble than a trade. While this may yield some positive results it is not advisable for forex traders to simply take a guess at the forex market as long-term this will lead to a complete loss of the trading account.
Many new forex traders want to skip this step as it requires plenty of time and money to accomplish. New traders often approach forex trading with the wrong mindset. Any new venture requires start-up capital, but before throwing money it needs to be researched and studied. You need to know what you are dealing with and understand the subject matter in order to profit from it. Without the proper education trading forex will not be a fruitful venture.
As forex traders learn and understand the market they can start to create a trading strategy. This step requires time and patience as all components need to be carefully selected and put together so they can create a functioning
trading strategy. Once a strategy has been put together a long period of trial and error will begin in order to test the strategy and make adjustments until the desired results will be achieved.
The opinions differ if the testing phase should be conducted in a demo account or in a real account and each traders needs to decide what makes more sense to them. Professional traders know that a demo account is useless as it does not offer the proper conditions for testing purposes. A strategy which works well in a demo account often fails in a live account and forex traders wasted their time without achieving the proper results. This can also lead to frustration.
How to test your forex strategy? The best way is to open a live forex trading account make a small deposit. The size of the deposit is up to the traders, but $200 is a solid start. While the trial and error period is ongoing a lost size of only 0.01 lots is recommended. This period is not for making profits, but rather to test the strategy. Once the desired results are achieved a bigger deposit can be made and the lot size increased. Rushing this process is not recommended.