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we have received a request from William Lee one of our youtube subscribers who
wanted us to make a video backtesting a fractal trading strategy fractals are one of the most
useful structures in forex in today's video we will discuss a simple fractal trading strategy
with and without martingale system without any further ado this is the summary of our video
we will start off by discussing the strategy that can be used in forex and stocks market
we will then proceed to the backtesting process once done we will share with you
the results and whether we encourage you to use this strategy or not stick to the end
of the video as we are back testing the same setup with martingale system to see whether
multipliers could make you profitable or not we are also sharing a little gift with you all
so how to trade fractal patterns fractals are indicators on candlestick charts that
identify reversal points in the market the pattern itself includes five candles and the
pattern helps locate the zones where the price has struggled to go higher or lower
they are usually used to draw support or resistance levels there are two
types of fractal patterns we can notice on the trading chart bearish and bullish structures a
bearish fractal point occurs when there is a pattern with the highest high in the middle
and two lower highs on each side we can see here a classic example of the bearish fractal pattern,
on the other hand, a bullish turning point occurs when there is a pattern with the lowest low in
the middle and two higher lows on each side actually the two patterns can only be noticed
after they are formed so we can't really enter the market at the top or bottom of the fractals
so what's the best way to trade fractals the easiest method is to enter the market when the
price breaks a support or resistance level which is made following the latest fractal patterns
first we can draw a range using the most recent top and down fractals we will go long
when the price breaks the top of the range we can use a buy stop order in this setup
on the other hand we go short when the price breaks the support level
that we draw using the latest down fractal patterns
we can use a pending order or simply schedule a price alarm at the support level
especially if we are planning to go short only if the breakout candle closes below the support line
all right we will use an expert advisor to backtest our strategy today let's look at
the settings of the ca first as usual we will use a one thousand dollar initial balance we
won't use the time filter this time but the most important element here is the minimum
number of fractal patterns that the ea will use to draw the support and resistance level
we will keep it as it is the next flexible input is the maximum fractal difference this
value represents the maximum distance between the fractals that the expert advisor will use to draw
the key levels 20 is good enough, as usual, we will enter the market with one micro lot
we will keep the martingale option disabled now and enable it later to see the difference
great let's begin back testing we will try the strategy on the euro usd forex pair
the best time frame to run this expert advisor is five minutes you can also try the higher
time frames but you will have a lesser number of possible entries we can choose last year as our
time range and of course the every ticks is the most accurate way to backtest trading strategies
let's run the test and see how the strategy will perform without the martingale option but before i
forget let's return to the expert advisor settings to set the take profit and stop loss based on the
request of our subscribers we will go for one to one point five risk to reward ratio always
verify the settings twice as a small mistake will cost you a lot let's click on the start button now
if you have a trading strategy that you want us to back test for you you can submit it at
3wtstlife.com submit your submissions are our main source of ideas when backtesting a
strategy take into consideration the broad market trends in the time frame your strategy was tested
for instance if a strategy was only tested from 1999 to 2000 it may not fare well in a bear
market it is often a good idea to backtest over a longer time frame including several
different kinds of market conditions but it's better to start with a small time frame first
in order to have an idea once you optimize your strategy you can backtest it on longer
time frames as the process would technically take a lot of time but remember not to invest
your money into a strategy before using it in live market conditions with your demo account
we have just finished backtesting the strategy without martingale settings let's look at the
results we can see that the drawdown is not that important as we didn't have many entries our
equity didn't increase that much let's look at the full report section we had a good drawdown of 1.46
which is quite good however the success rate was not that promising and we have made a profit of
ten dollars and 35 cents which could be understood as we were entering the market with one micro lot
i am not impressed so far anyways these are the results without the martingale strategy
what would happen if we enable the multipliers. Let's continue watching to find out
let's repeat the back testing process with the martingale multipliers enabled do you think
the results will be different let us know in the comment section we need to enable the option first
from the expert advisor settings for those who are not familiar with the martingale system yet
i would define it as a type of strategy which is based on the idea that you will double your
bet after losing trades in theory you will always cover your losses with winning bets
that are double the amount of the losing ones it's a risky strategy that many traders use to recover
their losses but if it's implemented properly it could be a powerful add-on to you trading strategy
we received many questions about the manual back testing process
it is definitely the best option for people without coding skills the idea is to do actually
the same as the automated code does but with your own hands it is more time consuming and the
results might not be that accurate especially if it's done by the person who developed it
if you are not familiar with coding expert advisors you can find another forex trader
and backtest each other's strategies otherwise you can spend some time learning how to code
an expert advisor i will leave a link to a useful udemy course in the description box
we have just finished back testing the strategy let's look at the results now as expected the
drawdown value is way higher than the one we recorded in the first attempt eleven percent
is an okay drawdown value in my opinion the other important figure is the success rate it was 54.79
which is quite good the profit we made is 184 dollars which represents an 18.4 percent yearly
return on investment the consecutive wins or loss figures are not that significant
well these are basically the right ingredients for a great forex strategy so should we use this
strategy to trade forex so these are the final results after back testing the fractals trading
strategy with and without multipliers we can see that trading fractals with martingale system is
more profitable but i am afraid that we don't have enough data to make a final decision yet
honestly i still prefer trading this strategy without multipliers let us know if you are
interested in a video where we optimize one of these strategies to make it more profitable
you can download this expert advisor from our website feel free to backtest it and share with
us your feedback in the comments section telegram or facebook groups see you soon and happy trading
you