Today we're going to conclude the triology of the bat testing and forward testing videos
We'll see where the important data come from and the various tools and software that you can, use in the process of collecting this data
now if you're not already seen parts 1 & 2 there's a link in the top right and
For those of you that have not yet downloaded the three very powerful excel spreadsheets, which will, allow
You to forward test your strategy in the unforeseen data you can download in the link below
I hope you find it useful sit back and enjoy
Okay, so just to recap now
These are the metrics that
We spoke about in the last week's video these are the very simple to
Understand metrics that you can either use some software which you're going to be talking, about in the moment or indeed if you log
Each and every trade you make on an excel spreadsheet you better work out
These very very, key metrics and as these, metrics that, we use to gauge how
Successful indeed our strategy is in back-testing but, also in this data that, we can
Use in our forward testing process to see the worst case to know. How. This strategy could perform in data unseen
So, we have the win rate which is the number of wins divided?
By the number of trades simply the percentage of winning trades
And the loss rate obviously the opposite the number of losing trades divided, by the number of trades very simple calculation that you can
Make, you manually or easy to obtain from your
Software the average win is the total dollar profit of the profitable trades divided
By the number of profitable trades and the average loss, again
The, opposite it's the total dollar or monetary terms lost on the losing trades divided, by the number of losing trades
The profit factor or the take profit ratio the next two, metrics here very very important the total dollars our profit on a profitable trade
Divided, by the total dollars lost on the losing trades that's the profit factor
You'll see that on the software in a moment very important then we've got the take profit ratio, which is the average win
Divided, by the size of the average loss, again, pretty much the same information as the profit factor this information
We use on our excel spreadsheet so you need to know, how
You can, work that out then
You've got the expectancy which, is the win rate times the average wind divided
By the loss rate, which is multiplied, by the average loss and the all-important drawdown, which of course is the percentage drop
From the recent equity high to the equity low
So that's a quick recap of the data and the metrics that
We discussed in the last couple of videos i'll
Now switch off the camera and go straight on to the screens to show
You, where we can, get this vital information to use in evaluating our strategy
Now, this first piece of software that i want to show
you is forex tester 3
Now i've been using folks tester 2 for multiple years they just upgraded it to the latest version it's a very powerful tool very useful
in bat testing your strategy if you're, using, manual trading so you, go through the charts candle
By, candle looking at support and resistance plotting in your buys and sells
In the line with your strategy and of course all the metrics are down here on the left that are being calculated as indeed you
Place your strategy in the back test environment you can, also run expert or automated strategies through this platform as, well?
Now before i continue with the
Demonstration i will say that if you, want to take forex tester 3 you will get a concession on the price by going
Through, the fog signals calm website we've arranged, some great deal for you there so you can see it's a really cool, piece of kit
You can, scroll through the price chart with a click of a space bar pulling up
The next candle in the timeframe that you've selected you can, also have multiple charts up as
Well so here's the one hour you can, also have
The anchor chart the 4-hour and the daily as
Well so you learn all price movements of course all timeframes and the click of the spacebar and you can see if it
Aligns with your strategy, and then indeed place your trade as you go and as you?
Do the metrics down here on the left-hand side these are, also update as you
Would place a trade so for example at the moment i've done a test today of 50 trades
Using pretty much the strategy, we use and talked, about in our trading room every, day
So far in this back test in this period of time, which i've chosen, which was august
september so
We've had a 23 profitable trades only
and we've had 27
Losing trades out of the 15 so we've actually had more
losing trades than we've, had profitable trades so he can, take this data and
clearly work out what our win rate would be so our win rate would be
23 divided by 50 equals naught point four six or
46% and our loss rate is going to be
27
Divided, by the number of trade 50 and that equals zero point five four or?
54% so clearly you can work out. Your win rate and loss rate
By looking at those metrics down the left hand side once you've done your back testing remember
These metrics are going to be used in our
Forward-looking excel spreadsheet to look at the strategy in the unseen data to give a much a much clearer picture on how
This, strategy, could perform and if mathematics is not your thing you can simply scroll down to the bottom and see
The profit profitability 46 or the loss
probability is
54 so it works of that for you there as, well now the next metric, we look at
Is the average win and the average loss, again, this has been worked out for you the average loss
86 dollars 98 cents average profit is
95 dollars and
46 cents
The next metric that, we look for and use in evaluating a strategy
Is the profit factor as you'll recall here the profit factor is showing
1.91 indeed quite a good profit factor for the testing period that i've just drawn up here
Okay, now the other metric, we look at
Is the take profit ratio which as you will recall is the average win divided
By the average loss one hundred and ninety five point four six divided by eighty six point eight
These numbers here
equates to a take profit ratio of
2.25
and
Clearly as you place new trades
in the backtest, you'll see the metrics on the left change as, well
That there's a little setup for our naked trading setup that, we talked
About in our training room all day so we can place a buy trade in there by stop
Just to barb that swing high
With a stop
Below and take profit target just roughly drawn, somewhere up there
Indeed you'll see now the metrics have changed
accordingly
take profit
Factor has gone up from one point nine one now to one point nine seven
And so on?
Now for tester three is pretty good for the?
Manual back test if you are indeed using an expert advisor on ei on mt. Four then. You may wish to use
The strategy, tester, which is available free on empty for let's have a quick look at that now
Okay, so here we are on metatrader4 mt 4 empty for free for most poker platforms so you can bat test for three as, well
We need, to do is go to view and open up your strategy tester now this is to test
Automated trading strategies, now i've loaded one in here already it's called the commodity channel index e a i've got some
Settings that i've put in there as, well now, we can run, this test it's going to be between
May of 2018 to the end of middle of june 2018
And we'll start the test, using the criteria that i have set out in the settings
Now, this will take a few minutes to complete so i'll just catch up the video
once that's done
Okay, so once the test has completed and then you can
Go, to the report down here on the toolbar at the bottom and look at the results of that testing purge for that particular strategy
There you've got all the key data the key, metrics that, we look for the profit factor
the expected payoff
Average profitable trade average losing trade the largest profitable trade the largest losing trade the number of consecutive wins
Against the number of consecutive losses you need to make sure
That this consistency in these numbers you, don't, want to see a strategy, that has a
High, percentage of winning trades only from long positions because then that could mean that the data that you're testing over maybe was not as
Realistic in its distribution as it should be so when you have all this data you can, use the calculations that i've shown
You, before and then to start to use this data to look forward into the unseen data again on that excel spreadsheet
Which is free to download?
Below this video so empty for is very good when analyzing?
Automated trading strategies not so good when wanting to analyze manual trading strategies which, is best done by?
using
Good old-fashioned pen and paper and scrolling through the candles one by one okay so finally here is the
Infamous spreadsheet that i've been talking, about you're to download free of charge if you, want to full walkthrough on how
This works
go
to The first video in this triology and everything will be explained for you so you can understand the workings of it basically it's here
Where you put all the data that you've got and gathered from your back-testing bit on folks tester 3 on mt 4 or?
Indeed using the good old fashioned pen and paper and the scroll through of the candles but now. You know
How to work out the key, metrics that, we use when evaluating a strategy?
Okay, so as usual i hope you found that useful and informative give me a thumbs up if you
Did give me a thumbs down if you didn't don't forget to leave a comment and
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week Myself and my other colleagues here at forex signals calm
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