Forward tests for Forex Trading Advisors: Explanation

Forward tests for Forex Trading Advisors: Explanation

Forward tests for Forex Trading Advisors: Explanation

It often happens that a Forex factory expert advisor that has shown good results in back-testing is unable to generate profits in real trade. This is due to the peculiarities of back-testing carried out on historical data, to which the system adapts as a result of optimization.


Back-testing programs do not consider some factors affecting trading success, such as the degree of liquidity of the instrument or competition from other bidders. The test does not allow to consider possible technical difficulties, which (if you leave aside the issue of the speed of execution of applications) are most important for high-frequency trading, are limited to communication shortcomings, failures in the operation of brokers and the exchange itself. The shortcomings of back-testing are useful to take into account in order to sober assess the capabilities of your system.


The apotheosis of the complication of trading systems is neural networks, which have many parameters. Based on the neural network, the robot, having remembered a large amount of information, can adapt to historical data so much that it will simply use them in the future. Therefore, especially when it comes to complex systems with numerous coefficients, the optimization process needs to be treated carefully.


A good system should show at least some positive result and without optimization, if all profitability is achieved only at its expense, the robotics writer has reason to think. In the process of optimization, in my opinion, it is not always worth stopping at the coefficients of the system, at which during back-testing the best yield is achieved. If the parameter value is very close to the edge of the positive range (for example, 7 with positive results from 5 to 20), it makes sense to move the parameter value closer to the middle.


forex trading advisors forward tests


Forward tests


What is a forward test? This is an optimization test of the system parameters on a different historical data sample than the optimization one. If you explain on your fingers, first we adjust our settings to a piece of history, finding some of the best sets (this is called optimization), and then we check on a later piece of history whether these settings are still suitable, or they are no longer relevant and the Forex trading advisor began to merge with them. Many beginners neglect forward testing. I hope I explained to you why you shouldn't neglect it.


The best set of parameters on a certain piece of history does not necessarily have to be the best on a later piece - everything can change a hundred times. And I think once again before installing the Forex trading advisors on the real reinsurance and check the operability of the parameters still will not prevent, even if you are the son of an Arab sheikh and instead of napkins use dollars.


Unlike established considerations, a forward test is not necessarily a test in a strategy tester. The forward can also be held online on a demo or a small real account. This approach has both pros and cons. The main downside is that such testing is very time-consuming. The advantage may be that in this case the readings of the test are as close as possible to real indicators (in fact, these are real indicators). That is, you will see exactly how the strategy of this broker behaves on this type of account.


In general, the forward test has as many as three main goals, not one. The first two are important for compliance with testing technology. The latter, on the other hand, provides important and unique information on profit and risk expectations for future trading with Forex factory expert advisor.


So, the main purpose of the test is to understand whether the results obtained in optimization are real. The fact is that the trading system, developed correctly, should bring profit not only at the optimization site, but also later (at the forward period and in real time). But this does not always happen - some trading systems simply cannot pass the forward test, starting to lash immediately after the optimization period. Such systems are simply initially inoperable, no matter how much you try to optimize their parameters. Hence the rule - if you 're going to use Forex trading advisor in real trade, it just has to pass forward testing. Read more about Forex Trading Advisors here.

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