How To Backtest A Black Box Forex Trading System

How To Backtest A Black Box Forex Trading System


Richard Banks

Developing your own algorithmic forex trading systems or black box trading systems can be very financially rewarding if you know how to calculate your percentage of winning trades over time by using very robust backtesting techniques. This article will explain the different aspects that are necessary to backtest a black box trading system called an expert advisor developed on the Metatrader forex trading platform, and the different considerations that you should pay attention to in order to get the most out of your trading system.

One of the most important metrics to focus on when you are developing a black box forex trading system is called modeling quality, which is a measure of how accurate the price data is when you run the backtest of your trading system in the strategy tester. The ideal number that you should be looking for in terms of your modeling quality is 99%, and any modeling quality number under 90% should not be considered reliable in terms of accuracy.


There are many algorithmic expert advisor trading systems available for sale to traders on the internet, and if you are either evaluating one of these systems or designing your own it is essential that you focus on the modeling quality of any backtest reports. Sometimes those types of websites will display a backtest that looks good on paper but has a modeling quality of 90% or lower, meaning that it may not correlate to live market trading conditions.

If you are evaluating your own trading system using the strategy tester you should focus on some of the metrics that will be provided by the final analysis such as maximum drawdown, accumulated profit and loss, and percentage of winning and losing trades. The maximum drawdown level is an important metric that you should try to get as low as possible by performing multiple backtests with slightly altered parameters, as this metric tells you the amount by which your account balance will decrease due to losing trades.

Depending on the risk settings that you are looking for when it comes to your trading system, the percentage of winning trades is a very important metric to examine so that you can have a percentage number for the accuracy of your trades. The most important metric that is going to matter the most to you in the final analysis will be closed profit and loss, as this tells you exactly how the system has performed. By following these tips about designing and backtesting black box forex trading systems, you can make sure that you understand what to look for in order to evaluate its performance.

Algorithmic currency trading

is one of the opportunites today that can allow retail traders working from home to have access to institutional level trading tools when trading the

foreign exchange market


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