Forex Back Testing is a useful way to see how a particular strategy would have performed in the past. Some forex strategies are very easy to backtest, whilst some are much more complicated.
Whilst back testing is very useful, it certainly has many limitations and certainly does not provide any guarantees on how a strategy will perform in the future.
When back testing a forex strategy it is important not to simply “Curve Fit”. Curve fitting is where you simply alter variables to make the equity curve more profitable. With curve fitting there is no other reason for altering the variables other than to make the curve look better. The reality of this is that it would be unlikely to be a profitable strategy when forward tested on a demo or live account.
Popular strategies to back test are various moving average crossovers, MACD crossovers and many crossovers of other technical indicators.
There are two popular pieces of software commonly used for forex back testing, Metatrader 4 and Tradestation. It is very easy to get a copy of the Metatrader 4 software as many brokers use it as their trading platform. Some of these brokers include North Finanace, Interbankfx and FXDD. Please note, I am in no way endorsing these brokers for trading. Some knowledge of programming will be required to program a strategy into these programs. However, if you are not a programmer there are always people out there happy to code a program for you, often for a very reasonable fee.
