How To BACKTEST A Forex Trading Strategy | LIVE FOREX TRADING

What is goodie, my people? We are back again with another jam, you know what I'm saying? Today is a video that a lot of people need, and I'm gonna give it to y'all. So y'all can tell by the title, today I'm gonna be showing you guys how you guys can backtest your Forex strategies, your binary options strategies, your stock trading strategies, whatever it is. I'm gonna show you guys how you can backtest all of your strategies, 'cause you do need to backtest in order for you to be profitable in the real world trading. So if you don't know what backtesting is, it's basically like, let's say you're a basketball player trying to make it to the NBA. You're not just gonna automatically jump into the drafts or automatically go to the combine or whatever it is. You have to practice, you have to put in hours and hours and hours of trial and error of practicing how you play basketball, practicing how other people play basketball. You just have to put in hours and hours learning the game. And that's basically what backtesting is for us traders. So we're gonna hop into the charts here. I'm gonna show you guys all the key things you need to know when you're backtesting, no matter what currency pairs you're trading. You could be trading GBP/JPY, USD/CAD, you could be trading gold, US30, whatever. Whatever it is, I'm going to show you guys how you can take your strategy, practice it with repetition, keep track of how profitable your strategy is so that when you're trading in the real world, you have confidence, you know exactly what setups you're looking for, you know exactly where to place your take profits, your stop losses, all of that. And I'm going to show you guys how to become just a better trader overall. So boom, before we get onto the charts and everything like that, I just want to break down a couple points for you guys to just keep in your mind when you are backtesting. I'm going to be backtesting on TradingView. If you don't know what that is, that's what most traders use when they're looking at the charts. They're marking up their charts, putting their stop losses, all different type of stuff. TradingView is the most used chart platform in the world. So if you do not have it, go to tradingview.com, make an account, whatever it is. But I'm gonna show you guys a couple key things you need to keep in your mind when you are backtesting. And the first one is you have to backtest or trade as if you are actually trading your money, as if you are actually in trades. Do not jump into trades, do not just take trades just for the heck of it, pretend like you are actually trading your actual account size when you are backtesting your strategies. Another big point of backtesting that I feel like a lot of people miss out on, or a lot of people don't take advantage of, is the fact that you should keep track of your losses as well as your wins. And not just to the point where, okay, let's say you take, you take 10 trades backtesting and you say, okay, I won 7 out of 10 trades. That's good, but I like to go a step further and count the amount of pips I lost in every trade versus how many pips I won in every trade. So say I took 10 trades with the same thing, um, I, I won 7 and I lost 3. I'm gonna calculate how many pips I won in each, in every trade, because every trade we take, most of the time we're not always losing the same amount of money or making the same amount of money. Well, not money, pips. Most of the time where our pip number varies from whatever range you are, depending if you're a scalper, intraday trader, swing trader, whatever it is, you're never taking just 20 pips. Every trade, you're never losing just 3 pips. So I like to take, um, the calculations of every single trade I do. Let's say if I won— I win one trade and I won 50 pips, I'm going to take that 50 pips and add that every single time I win a trade. I'll take the amount of pips that I want in that trade and I'll calculate that up at the end of, let's say, the 10 trades I take. And then when I lose a trade, I'll calculate how many pips I lost in that trade and then every other trade I've lost. So at the end of the 10 trades, I'll put all those numbers together, I'll subtract the amount of pips lost by the amount of pips that I gained, and I'll see what my total pip, um, like the amount of pips I've captured at the end of 10 trades. That's usually how I backtest, and I highly suggest that for everybody else, just so you can know if your trading strategy is profitable or not. Because I've been— I've backtested before with a strategy that I use, and I've lost 7 out of 10 trades, but I won 3 trades. And because of my strategy, I was still profitable pips-wise. Another big key that a lot of people have to keep in mind is when you're trading or backtesting, you should be backtesting in the same time period or the same sessions that you are trading in. So let's say you trade from 8 o'clock Eastern Standard Time till 12, um, PM Eastern Standard Time. Look for setups in that, um, session time when you're backtesting. So don't go backtesting at 3 o'clock in the morning, or, um, don't go backtesting on candlesticks that's in— that's in the middle of the day when you know you do not trade in the middle of the day. Pretend like you are trading actually exactly how you would usually trade. The same time sessions, taking the same setups, using the same strategies. That's how you build the confidence in your strategy as well as your knowledge and how markets move around the time that you're actually trading in it. Now the last point before we actually hop into the charts right now and I kind of show you guys my process for back testing and everything like that and probably show you guys my little strategy that I use for Forex and binary options: do not rush into trades. Do not cheat yourself on trades either because we have the fact of, um, we know where the candlestick is going to go, um, just based off— because you'll see when I'm backtesting it, we have a tool in here that lets us rewind the time basically, and we can kind of peek forward and see where the price is going to go. Do not cheat yourself by saying, okay, I know the price is going to go up, so let me pretend like I'm actually— that I'm unaware of it. And kind of cheat yourself to the point that you think you're actually good and you're catching these trades, when in reality you already knew where the price was going, if that makes sense. All right, so here we are on the charts. This is actually— I trade gold most of the time. I really trade GBP, GBP. I said GBP twice, didn't I? I already trade these other currencies. I'm working on mastering gold. This was a trade I took earlier today, I believe at 8 o'clock in the morning, something like that. That is the session I trade. I usually trade between like 7:30 to maybe 11 or 12 o'clock noon. This is a trade I took today. I caught 92 pips on gold, which is cool. If you guys want me to do like breakdowns of the different trades I take, usually I just post it on Instagram. You guys can check out my Instagram if you want, @Juvier_. I usually post my trades on my story most of time when I'm getting into it. And then at the end, if I lose or win, I post it on my story too. Um, but basically for backtesting, all I do is, let's say if I'm backtesting on gold, I'll go to AU— I mean, XAU/USD, and I'll just go to a new chart, um, and have a clean chart right here. And basically how I backtest and how I suggest for other people to backtest when they ask me is I usually go on like a 4-hour chart or just a higher time frame chart. I usually do more of a scalping type of approach. I don't really use any other or any higher time frame, higher than 4 hours. And I really just use 4-hour time frames for my support and resistances. But most of the time on the 15-minute chart, sometimes I go to 5-minute. Most of the time it's like from the hour to the 15 or the 5-minute time frame. But just to, um, kind of go back in, if you're on TradingView, there is this tool that you have up here that's called Replay. And basically you click it and you'll click a point in time in, um, on the chart and it'll basically take you back there. And now you have the option of using this tool up here to go forward. If you press this button, it's going to go forward a candlestick. Um, press it again and go forward again, or you could just press play and it'll kind of just go on its own. Um, so basically how I backtest, I don't like seeing where the market was. I don't like cheating at all. So what I do is usually come just like this. If you watch my Forex strategy video, I kind of did this just a little bit. I'll press the replay button, I'll close my eyes, and I'll scroll back just so I know I'm not cheating. I don't, I don't know where the market is. I'll just randomly click on the screen and it will take me somewhere. I don't know where I am. Um, so boom. So now I have no idea what the market is doing next. It's as if I'm trading live in person. Um, but now I'm going to go back to the time frames I usually use in the beginning of my back testing. Like I told you guys, you're going to want to trade it or back test exactly how you would trade in real time. So my first, um, thing, my— the first step I take when I'm setting up my charts, um, getting ready to enter inside a trade, um, or just set up my chart for the first time, I should say, I'll go on 4-hour time frame, um, and I'll just plot my support and resistance. So this is my strategy. Of course, you guys have to do whatever you guys use. I use a support and resistance and a retest type of strategy, um, as well as like a retracement type of strategy. If you guys watch my Forex video The strategy I used was more of like my retracement, um, strategy. But if you're— the same thing can work for binary options, the same thing could work, um, if you're doing stock trading, options trading, whatever it is for you, HFX trading, whatever you want to call it. Um, you're using the same type of template because we're all using charts. All of us use charts. Some people use, um, well, most people use candlestick charts. A lot of people don't really use line charts, but backtesting, and this, the way, this way of backtesting can help you in any single way. Just like with binary options, it can work the exact same way. You could go down because most of the time binary options or HFX trading is done on a very, very small time frame. So you can hit the 1, the, the 15-second time frame, 30-second time frame, the 1-minute time frame, and do the same exact thing, um, however you want to do it. But, um, for me right now, I'm going to trade it how I usually would trade it. So now I have to go back, I just messed messed up. Um, I have to go all the way back and start holding the replay. Close my eyes, go back, click randomly on the screen. Um, go back to 4-hour time frame, and I'm just going to start with my strategy of plotting my support and resistance zones. Um, just really quickly, boom, we have them right here. These are just my major support and resistance zones. We have another one right here. We have another one down here. Um, and like I said, obviously you're just going to trade it exactly how you usually would trade it. And when I'm drawing my support resistance, I look for more recent price action versus like— you'll see the price is cutting through, um, further back here. Oh, sorry, I just messed it up. Um, but further back here, the price may cut through like all the way back here, but this was all the way in December. I look for like more recent price action, um, or just more recent support and resistance. Like this is the support and resistance zone for you, for me right here. That's why I drew this line, um, because we have a touch right here, touch right here, touch right here. Um, it came down, broke it, retested, it came all the way back down. It touched right here again, touch right here again, have all these touches over here. So this is why I chose this support and resistance zone. Same thing over here, we have all these touches over here, over here, over here as well, over here. And no price really automatically stops at a line itself directly on the line. So most of the time when I'm drawing my support and resistance, I will just draw a box around the line and kind of give an area of support and resistance versus just waiting for price to hit this one line right there. Um, but let's just say I'm not gonna do a bunch of back testing. I just want to show you guys exactly how I do it. I'll set up my, um, support and resistance. Let's just leave it there for right now. We're going to 1 hour, and this is where I put in my smaller support and resistance. But like I said, I only trade at a certain time in the day. So what that means, right now this candlestick is at 4 o'clock in the afternoon, so I would not be trading around this time. I would have to fast forward up until, um, 8 o'clock the next day, or 7 o'clock. 1, 2, 3, 4. This is 5, 1, 2. So this is 6 o'clock. All right, so this is 7 o'clock right here. This candlestick is a 7 o'clock candlestick. So I would be in the market right now. So at this point, I'll be looking for trades. I'll be looking for, um, I would be here actively sitting in front of my computer at this time. So that's, that's, um, crossing out one of the key points that I said to keep in mind, that trade as if you're trading in real time. Trade exactly how you would trade in real life. So now it's 7 o'clock. Now I'm going to start looking for trades in here. We see it's on a strong uptrend. This is not a breakdown video or nothing like that. I'm just kind of bringing you guys through my whole, um, strategy. Um, I'll use my retracing strategy for right now. Um, so we're on 15— I mean, we're on the 1-hour time frame. Oh, it just messed up. I just pressed the wrong button and it took me all the way back to the beginning. Okay, let's try this again. All right, so I just drew all my support and resistance zones, and now we're gonna try this again. Let's go back to the 15-minute time frame because that's the chart I'm most of the time usually on. Um, we see we're on a downtrend right now. Um, so at this point, this is 4 o'clock in the morning, so let me fast forward just a little bit. Um, so I need 1, 2, 3 candlesticks. Okay, so this is 7 o'clock. We're back to being at 7 o'clock. This time I can actually trade because it's not going to mess up. So here I'll be looking for my strategy. My strategy is basically, um, when we're on a strong downtrend, I'm waiting for the retracement to go up, and then I'll go in on the retracement and wait for it to go back down. So like, for example, um, this right here, I would have put a box around this green, and the price came all the way down here and came back up. I would have got in on this green candlestick with my stop loss right above the box, and I'll be targeting the last low. So this was the last low out here before it went all the way up. And as you see, that, that trade would have won. But that was not me backtesting, that was— I was just showing you guys my strategy itself. If you guys want to get more familiar with that strategy, you can watch my Forex video. I just put it out a couple days ago, so go check it out if you're interested in that. So now I have to just wait for, um, just entries for my strategy. So I'm just going to fast forward a couple times Um, so we have this zone right here that it came up to before it rejected this candlestick, but this is also at a support and resistance zone. So this is kind of iffy for me. I don't really trade off of support and resistance zones. I kind of just have them there for just a cautionary or be cautious around this area type of zone. Um, as you can see, it went all the way back up here, so I'm looking for a change of direction at this point. We had a low here, a high here, low, a lower high, then we had a lower low again. And it's looking like it might make a— um, oh, it's messing up. But it's looking like it might make a higher high if it closes above this right here. So I'm gonna draw a box right above here. So if we get the price to close above here, then we have a whole change of direction. Um, you see it rejected this top part. So for me personally, I would not even— I would wait to see what's going on next. Obviously, um, it started over here, but now it's looking like it's going to close above this box. It's still struggling above this box. Boom, now we have it closing above this box. So then I would just wait for it to go in a, um, a stronger uptrend. Of course, it did not go in a strong uptrend, just crashed all the way down here. For a good 68 pips. Um, but I'm just going to wait. Okay, so boom, this would be a perfect entry right here. So we see it came down and now it's making a lower low at this point. So I take the last lower part of it, which would be this candlestick right here on this green candlestick. I'll put a little box around it. I'll wait for it to go down, um, and wait for it to come all the way back up to retest this box. If it doesn't, then I will not enter the trade. Boom, it came back and retested this box. Um, we see it's on a downtrend. I'll look on the hourly time frame. Um, it actually bounced right off this support zone. Um, so what this is telling me is that this is a nice take profit area. Um, and with my strategy, I would go in right here for a sell. This is too big of a stop loss for me. I usually would not take this trade, so I'm actually not going to go into this trade because in real time, in real life, like I'm saying, you have to trade how you would in real life. I would not personally take this trade just because the stop loss would have to be too big because I always put my stop loss above the candlestick of the last lowest low if it's on a downtrend. And you see this green candlestick right here, the wick came all the way up here, so this whole stop loss as a whole is 27 pips, and I do not trade that, more of a scalp trader, I would, um, if let's say the stop loss was right here, I would personally take this trade just because that is a much smaller stop loss. Um, if I got in trade right here, I could put the stop right above here for 13 pips and then take this, um, support zone right here for a take profit and get 41 pips with a, uh, 3 risk-to-reward ratio. But obviously it's not because my strategy, I have to wait for a better trade, um, because this stop loss is too big. So this is the perfect example to show you guys, you don't need— especially when you're back testing, or I should say even when you're back testing— you don't need to take every trade. Just like in the real world trading, you don't need to take every trade. If you see a trade and you're like, I don't really feel confident about this one, you do not have to take the trade out. There was a quote I saw before, um, I forgot who said it, maybe Q Banks or something like that, He said missing out on money is much better than losing money. So if you saw a trade, let's say this trade right here, let's say it ends up going in my favor and I would have won it and I went in the trade, I can't be mad about me missing out on the trade because it's much better for me to have missed out on a trade, not losing any money. Of course I didn't make money, but I still didn't lose any money. It's much better for me to not lose any money, um, or to miss out money, um, rather than going into the trade that I'm not confident about and I end up losing the money just because I wanted to get into trade, just because I was bored and wanted to get into a trade. So let's see how this plays out. It ends up going down, rejecting this area, and it ends up going down. It would hit my take profit, so I would have actually won this trade if I went in it. But like I said, um, don't take trades even when you're backtesting if you're not 100% confident about it. So we see it's now on a nice little downtrend once again. So what I'll take is this right here, just to clearly define the downtrend. So I have up, a higher high, a low, a lower high, then a lower low, and it's coming up here. I would personally wait for it to come hit this lower, um, lower low once again before I go into a trade. But it doesn't. It comes down, and now I'd be looking for a trade at this lower low. So if it comes down and hits this lower low, then I'll be waiting for that trade to get in. I accidentally clicked too much, um, but I would have gotten literally right here. Um, but this is a supply and demand zone right here. When you see a lot of wicks is, um, followed by a big movement like this, a lot of big movement down and a lot of wicks over here. Then it shoots up for a big movement of 55 pips, and it has the same thing over here where it's rejecting this area or consolidating around this area. This is supply and demand zone. Um, so I would be iffy about this trade, but I do want to just take a trade just to show you guys like me going into a trade. Um, I would obviously have to define my take profit which would be down at this lowest wick right here. Um, so I would have gotten as soon as the green touched here, but I did click too much and had the red candlestick. But let's just say I got in at that green candlestick. I'll put the stop loss right above my box, and I put my take profit right at this last wick before. Wait for it to play out, and it took me off the trade. So this is a great example. We're obviously not going to win every single trade, I lost 12 pips here, um, trying to make 27 pips. So when I lost this trade, I'm not just gonna be like, oh dang, I lost that trade. I'm going to journal this. I'm going to say, okay, first trade out of 10. I'll put 1 out of 10, uh, so the first trade out of 10, I'll put -12. So I lost 12 pips on this, -12. Then I'll look for a new setup, um, so restart obviously, um, look for a new setup coming here. This is our last high. Um, so I put a little box around this high right here, see if it comes down and retest this area. If it does, then we're going to go in for a, um, a buy. Um, so it did come down, it did try to close outside this box. It is close to a support and resistance zone. Um, so I personally would wait till it comes down just a little bit more. So my camera cut out and I didn't even realize till like 5 minutes later, but I was basically explaining to you guys that I was realizing I wasn't trading inside the session I usually trade. Um, you have to make sure you keep track of that when you're back testing because like I said, you always want to trade exactly how you would trade in, in real, um, real life or real trading. Um, so only trade the session that you would trade. So this right here is 8 o'clock. I usually go to around 12 o'clock like I told you guys. So I'm going to put a line at the 12 o'clock area, which is right over here. I wouldn't trade past this, so I'm going to look for a setup in between there. Um, just to show you guys again kind of, um, how we take a trade or how we document a trade. So we see it came above here on our, um, one of our hourly support and resistance zones. So then I'll be looking for a retest. I couldn't go down to a lower time frame just so I can catch the retest at a nicer point to get a better stop loss. It keeps going up. We'll see if we come down to retest it. It's kind of consolidating above that area. Okay, it came back and retested it, gave us a doji right here. It, um, rejected this last, um, support and resistance zone. So then I'll go for a long position right here, targeting the last high, stop loss right above— right below the last candlestick, if you guys can see it right here. Um, and we'll see how this plays out. Boom, it's going up, come back down, up, and there we just won the trade. So for this trade, I, I won 33 pips So then, like, I had lost the last one. I believe I lost 12 pips that last one. Then I would put, um, after the -12, I'll put +33, and I'll go on from there until I hit 10 trades. I usually do my back testing in sessions of 10 trades, um, just so I can keep track of like how many pips I would win if I take 10 trades, or how many pips I can average if I take 10 trades, or if I'm profitable, um, pip-wise after 10 trades. So that's basically how I backtest. I gave you guys a couple keys on how you guys can backtest, a couple things to keep in mind when you're backtesting. Treat it how you really would treat it in the real world just so you can get that confidence. Because one of the biggest keys you need in the forex market, in the day trading market, the binary options, or whatever it is, is confidence in your strategy. You have to learn your strategy, you have to learn what to look for in your strategy, and that is when you can see it. As well as, you know, risk management, um, psychology, all the type of stuff. One of the major things you need is confidence, and you can get that by backtesting, um, and putting time into backtesting. Don't expect to backtest for 2 hours one day and become the, the best day trader in the entire world. You have to put time into it, hours and hours every single day, working, working on getting better at your craft. But that is the end of the video. Hope you guys enjoyed it. If you did, make sure you like right now. If you have any questions, like I said, feel free to DM me on Instagram @jubrat_ or just drop any comments down, uh, below in the comment section. And I will read them, get back to you. Maybe I'll make a video if you guys have any questions about any videos you guys want me to do. I can do that as well. And yeah, good luck on all your trades. Stay safe out here, and I got nothing else. Goodbye.