How I BACKTEST a Forex Trading Strategy in 2020

[Music] guys how's it going hope you're having an incredible week so far and welcome to with this video so as you've probably seen the title of this back testing now we're gonna get into this but alongside the road to consistency series which has recently been launched really hope you enjoyed that by the way a lot more to come in the future in the near future which I'm very looking forward to in regards to this I really wanted to do another series alongside that which is obviously going to help on a different perspective which is gonna be called the trading essentials now what this is going to be is going to be a technical base series around back testing forecasting ASR trade journaling credit rating plan all these different things and my process with that and you know the reason I wanted to do this I really wanted to pay this forward to you guys because I remember spending so much time in here trying to figure all this stuff out for myself in the beginning stages when I could have really used a youtube series or a YouTube video such as this so I really wanted to pay that forward and give that back to you so it's gonna be incredible cannot wait for this and first and foremost it's gonna be back testing now in my opinion there's not just one way to back test so I did am a video back in May think it was May last year and I had a great response a lot of you found value in that has died actually implemented stuff out of that video which is really great to see and yeah so in regards to this there's the more generalized approach to back testing which was what that video was so that's more so gaining confidence with a natural strategy then there's a second box is gonna be more so specifically diving into pet characteristics pair behavior understanding go to setups and all these different things alongside that so that's gonna be sick this video is going to be a remake of that first video just because there's a few little tradingview updates that weren't available back then and my process has probably evolved just a little bit ever since then as well so we're gonna be really good to revisit this and do a few different episodes in regards to back testing forecasting SR such and such so it's gonna be sick well yeah let's get ready to back testing right now and dive into a pair [Music] you [Applause] [Music] guys so welcome onto the charts now two things you're gonna have to bear in mind before we get into that testing is you're going to need two things so you're going to need to trade in view or a chart platform of your choice and then you're going to need a back testing spreadsheet now for this example I provided you a free one which is going to be down in the link of this description so definitely check it out and it's going to be based on a Google Drive for you to use alongside some SR documents and some forecasting documents as well so hopefully that's going to help but in regards to bat testing this is a spreadsheet we're going to be using this today I'm going to show you exactly how I use it it's very simple we can have it a lot more complicated to this but just to keep it simple for this use that's what we're gonna use just bear in mind though with this this spreadsheet is locked so you can't actually edit this original version so what you're going to have to do is follow the instructions on this instruction tab here where you final make a copy and then save this template to your drive to begin using it so just something to bear in mind I remember the last time I launched a spreadsheet you just went disaster I think I didn't lock it and then everyone tried to overwrite different the original copy so just went yeah it wasn't the best of all this this time everything is locked so you just have to make sure that you create the wrong copy so that's good in regards to this so before we get into the back testing the chat platform that I use personally is called trading view I just love the platform in general and really good use of this over the past two three years now there's plenty different platforms you do not have to use trade view this is just my personal choice but if you do want to use this if feel free to use the free version the links will be down in the description below for you to check that out and the paid version is a lot more you have a lot more tools to use on the paid version so for example just off the top of my head when we go into back testing I don't think you can use the replay mode on trading view when we go down to the four hours of one hour and the lower timeframes but you can use it on the daily chart I think so just something to bear in mind there's pros and cons of both obviously so it's just personal preference now so I remember on the last example on the last video I did I think we use what was it Dalek yeah doll cats so in this example let's use a different pair let's go to watch we go up to it's got to pound Ozzy let's do pound Ozzy right so just to reiterate the points from a last video I dropped three tips in that video which is still useful Tuesday so number one make sure you use it in forecasting and whilst you're at SN I'll be showing you lab examples of how I personally do this next one is to always focus on the higher time frame structure you know I talked to a lot of people you know in regards to bat testing they send me screenshots I've held their bat testing and the child looks like this you know if you're done the one hour chart or the low time frames and it's you're very zoomed in what you need to do is just take a step back always go back to the entire time frame structure which is great because we have a new train of view feature that has allows us to do that without actually getting rid of price action so I'll show you that in a minute so always remember to zoom out do not get caught up in a lot of time frames because what you're gonna find is that you just get involved in subpar allied trades and it's not gonna give you the best the best foundation when it comes to light rate as well you want to treat your back testing exactly as you would with in the live markets that's the biggest thing I'll say and another tip as well which I dropped in the last video is to focus primarily on the most recent two years of data now this is just a guideline I've used and you do not have to follow this as a focus more on the first two tips but yeah the most recent two years of data is obviously the most cleanest and from what it's been before in the past if you just take this price action here and then we go back to around here like it's a little bit cleaner not too much of a difference but we do have these clear structures now which do we should do make a lot more sense in these light markets so that's just a myth a bear in mind now let's get into bat testing so first and foremost what we're gonna do we're gonna pick a time frame that we want a bat test so for this example we've just come into 2020 at the launch of this video so let's go to 2019 now what I'm going to do is use the replay tool on trading view that's available and we're just going to mark this back in just before the start of the new year so I'm gonna go New Year's Eve 2018 right so just going to focus on that right now and what we're going to do is draw in structure first and foremost just to give us that foundation so that when we drop to the lower timeframes it's already set in stone and we're not second-guessing what we're looking for which is the key so look at this bigger structure what am I looking for well simply just look into this we can see but that isn't clear impulsive move to the downside this just acting is a bigger corrective face too often we drop to the downside longer term so let's just utilize pattern separation in this area here and see what we can draw in so I'm just going to draw in the structure here like so this bigger expanding formation you can see this come into fruition now so bigger expanding formation like so so the question I want to ask myself straight away is when I dropped it down down to the lower timeframes what am I gonna be looking for well right now prices in the middle of no-man's-land so I'm not looking for any buying or selling opportunities of unless we get a clear structure that develops short term for an asset short term play whether that's to the upside or whether to is to the downside so that's something I'm gonna be bearing in mind you're just drawing this double top as well cool so right now everything's set for us to drop to the lower timeframes let's do that now first and foremost drop into the 4-hour chart any structure that's developing right now not so much just gonna let this fall what our charts take a look at this so wanna trap we've broken out of this karate structure here to the upside and now it just looks like we're forming continuation or the stuff start with D progression so at this stage I'm not looking at to too much but what I'm gonna do is fast-forward this I will play this out how I want we back tested and then when I spot a buying or selling opportunity I'll then join you back and we'll carry this video forward cool so you're now joining me back in to the bat testing session so I wasn't look the reason I wasn't looking at anything before is because we're kind of in the middle of nowhere as you see there's no real structure and like outline before the most important thing is always back out to high-tech rooms you know if you ever get confused with Batterson this is the great thing we're trading usual let's say for example we get caught up in the lower timeframe structure we're not too sure what we're looking for or you simply do using the replay mode it's already connected in place let's say we want to back out a daily timeframe right what were they real in that 24 foot jump 2018 when we back out to a daily timeframe that keeps that place for us so that this is a little new trading your bed this is very beneficial I think people were crossing this for a while and you can see they haven't changed so it doesn't allow you to see future price action which does it one of the biggest keys with impact essence so with interchange structurally but yeah but we're down to the lower timeframes we do have a bit more structure right now so just looking to see if we if we start to push up to this a structure here or this area here for selling opportunities but the first area that we'll be looking at this cell will be here so this brings me on to the first tip which I talked about for is forecasting when you're baptists and now you've seen me do it in in live markets before when I'm simply get the brush tool point and exactly what I'm looking for in the markets then take that to the downside or the upside whatever the situation is now this is super useful to use it within back testing as well because it comes down to the concept of you want to treat your back testing sessions exactly how you do in the live market so however you trade in live markets replicate that within that doesn't because the last thing you want to do is start taking trades within back-testing that are not going along with your plan you have no idea why you're taking it you're taking it because it feels good but it's not along with your plan and you wouldn't end that in the light markets so you have to always approach things when you're Batterson in a state of well would I do this in the lab market is what I tried this with TEDx what I'm training right right now like those same questions you ask yourself so let's get into this so what I'm looking for here simply is looking to see if you get any selling opportunities actually here so ideally what we get is just a love push-up to these areas of value right and if we do get that we can see that we have this closed structure like so anything like that I'm just using this as a basic forecasters to give me an idea of what I'm looking for so any selling opportunities around this area within that selling channel I'll be looking to tailor to the downside from here let's say 40 pips top wouldn't be unusual on powders II remember it is it's relevant to the structure it's relevant to the panel we'll notes as well for you beginners watching this video as well is that a 40 pips top on pound ozzie will be completely different to a 40 pit stop on something like your $1 is relevant to the currency faster you need to bear that in mind so if we just take a look at this what can we have well down to this slope here we've got 7% and if we were to carry that all the way through then we've got 19 for let's not get ahead of ourselves let's just focus on this 7 point 8 percent profit that's become be decent so looking for a selling opportunity there or if I don't want to get that for whatever reason walking for the first impulse then I'll be looking to take the first question within the move so let's just apply that knowledge so right now as we can see we're getting very close to that our destructor right now essentially we can see that we have these three sections we have one two three peaks here lined up that completion of that pattern and we do have the impulse this corruption within the pattern which ultimately means to me this complete enough pattern so we may not actually get all the way there but they will be nice if we get all the way there for the entry but if we don't get that I'm happy staying out of this trade just because I wouldn't get involved in that trading live markets cool so we can see this formation today now okay cool so we have broken a little bit earlier than expected and but we did outline up form now bearing in mind that we didn't need to get all the way there it would have been nice that would have been the prime opportunity for me to get involved in that trade that's why I'm or not already in this trade but happy with that let's just have all this structure slightly because we have broken out right now so I'm just gonna use the most recent two touches and just have all this ever so slightly so the searcher hasn't changed at all just of all the slightly to represent this as the top of the structure now so simply looking for simply looking for a couple things well let's not play this out ideally that one of happen but it is what it is yeah ideally here I would have been looking for more the type like can you see how this is more steep in nature so this is quite steep in nature I know why these flights teas not within my plan I have a furthermore let's grab this prior section here I prefer these flows mmm ugly that's quite steep as well but it's more so the flat corrections in which we get the impulsive move down then we get flattened it's quite flying there Chuck here flat and tight nature I prefer those this is quite steep and this is more so quite steep as well so I don't really like those just because why don't I like taking this well if you take that trait you have to be aware of this low here in what you can reject and actually come back up and form a deeper structure and then move to the downside so that's why I don't like taking them but right now look at this structure what am I looking for well just looking for a larger flag to develop at this point so looking to see if just mark at the higher and that's just marking this low at this point just looking to see if we start to form just a deep of like ideally a three-ton structure so anything like that and I'll be all over that I'll be looking to take that to the downside 100% why because that's within my plan and I'll happily take that and so yeah if we get anything like that along the lines 1 2 3 happy take that the downside where do I use the one hour chart the 15 remains to be seen but I forget that happily take that to the downside if not in this if this doesn't move back up to the upside then I'll be looking for a clear sunny channel and a risk entry to thin tape out to the downside so just bear in mind what what entries are within my plan and then to stick into that through our bat lesson so let's see how this plays out but we do just judging by this this structure here we just take a look at this we do have the essence of a head and shoulders formation so would not be surprised if this does come down to the downside pretty soon so we'll see how this plays out okay so this is super Anderson so you know how I like line up through tip structure so it's actually forming quite nicely actually what I like about this as well is the overall scoop here the scoop box round looks really nice for more downside so what I'll be looking for right now is I'm actually looking to drop through the 15 minute chart just to use that as a little filter but if I've got two inches in mind then this happens in the lab pockets quite a lot where I'll be looking for a one hour ejection to get involved but bearing in mind a pound ozzie that let's say for example we get a retraced candle here right let's say and then they get involved in there it's quite a large stop you can see 67 pips do you want to get involved in that not too much I really go oh really you're both 50 pips top that's just how I like to do things but that's why I'll be using the 15-minute chart in this situation but let's drop to the 15 see what would go drop into the 15 minute chart whatever go so simply just looking for ideally we can see this face line here just looking for a bit more development so we just were in this back in I'm dealing what we get is we just collect a little bit higher and then we start dropping to the downside so I'll be looking shortly to set me all the glow here still love them whole development yeah that's looking good there's lots of prime enough to drop the downside so if you're gonna say let's get an axe as if as if this is live markets I'm gonna set me at your order just below this structure here so if I get time if price drops below here I get treated into the trade and they'll play up nicely so let's say yeah that's the downside but in this situation it will be like 55 just because it's pound Ozzy let's go with that for now and we'll see what what you'll find as well is that if I set the entry hole here and price trickles up for a few more hours after that then what I can do is just just this slightly meaning that I'm getting with a slightly tighter one but yeah it's not an exact science let's see how this plays out over the next few hours so yeah literally gonna set an interval here right now as if it was in line markets and yeah I'm gonna imagine myself setting them sure I said that the word for it yeah you see how what I mean before so price trickles of a lot more I can adjust that just ever so slightly probably fifty two won't be too bad at this point there we go those prime right now the fact that the fact that we price broke this previous high here's on this is prime so I like that I like that very much so 48 would be unusual here cool suborbit once again you can see how I'm just doing this right you can actually do this I used I use this all the time in the line markets as well so it's gonna be gonna go as 45 I think it's getting very close to break into the downside so happy with 45 targeting the low here for 1.4 meaning that if price gets here impulsively Propst I'll be able to take the risk off the table should this develop into a deeper structure and then looking for more more downside but let's just focus on this structure right now as it is there we go cool so the main thing that I'm gonna do once they get triggered into the trade isn't gonna take a screenshot this is a as you'll see on the back testing spreadsheet we have the before screenshot and the after screenshot so as pretty much as it sounds so before you take a treat so as you get entered into the trade we pause screen shot here for trending view and then after you manage a trade effectively get that get out of that position then you take another screenshot so just you can go back to that compare your analysis and see if you can optimize that further and get get better so let's just take a screenshot but I'm gonna go to the one hour chart just to take the screenshot because it's more so the time for values see ya let's take a screenshot on this one yeah this is looking really nice actually so what we're gonna do is we'll do is on trading view we have this little camera icon all you need to do is click that take a snapshot and it'll provide you with this link all you simply do is press copy go to the back tested spreadsheet and then we simply right click and then paste on that and you'll see this little link so if we were to then click that you can see it gives us a screen shot in real time so it's good it's really good to go and for going back to so the less just upload this out I'm gonna - exactly Howard in the lightbox right now so this point hasn't really move too much so they give one hour start to meet the downside right now it's in a plug right now why this could actually move to the upside or we just impulsively broken so it can be very interesting so I would drop in cool so now this point would moves enough away so we round about 2.6 I believe you must stop to break even so simply what I'm going to be doing right now is just grabbing a red lentil so you can see there's a little toolbox here if you don't have that simply go into the second option here on the trendline and then go to your horizontal ring now I have template set up so you'll see I can set up set up templates so I'll say I don't want like that go to template here and you can actually create new templates in so you can actually customize something to your liking then save that as a template so I've got a trailing stop here that I used with your back testing just to mark on where my stop loss is just that I can't kill myself I know exactly what I'm looking for and where my stop loss is so breakeven for now let's see how this plays out at this point where you have broken this low which is nice this point it was going to lock in one point two the reason for that is because we've broken up the structure impulsively now it's going to lock in before and it's gonna lock in profit in a way there I'm just locking a profit just before price broke out so using the structure at this point in time we've been to the four ways well once again so I'm just gonna meet this down I'll try and move this down that's the key question there we go so we got two point two up to two point one two arguably another cell here so you can actually get involved in that trade there is that with them I plan to take so far into the moon from now I'm happy staying out of that but my people you can see that correction they're following the impulse impulsive move to the downside cool it's going to lock in profit above it's going to lock it in here gonna lock it in a book just above this structure here so we've got by this point three point five locked in and prices still drop into the outside so what targets and my outlining in order to aggressively manage this trade well as soon as price gets of these areas and follow you here wants to be get to these lows then that's where I'll be more aggressive with with the structure so I'll be you know truly must up the lobby tighter just based on that can be an area where we get more deep questions or actually come back up to the upside and if we just go back to the daily chart just to give you an insight also within the bigger time frame structure this is just an this is essentially just a short term plenty because this can actually pop back up to the upside later in the year or we all in 2019 this can actually pop back up which I remember did so you set the bail that might as well because it hasn't completed the overall structure so if we take a look at this so stop-loss still above the high and all I'm doing here you'll notice on basically they're in his using structure with my management and then using business from Thai as well so that's all I'm doing right now this is just foaming another corruption it's gonna be super Trista's to see that this plays out you think I actually remember this maybe I don't but you know this would be an interesting one all I'm simply looking for now is to see whether this actually cracks up to him and then we get rejection from there and drop so that'll be interesting and then at that point I can unlock you more profit but at this point it's going to move profit down so as before I was walking a profit just about that's pretty high now if I'd have taken that correction as a cell disruption here I would have moved my stuff to break even by now hence why I'm just moving this down to the break-even area of that correction that's why just in case you wondered so now right now we've got a five cent bottom cool and don't get don't get it too confused to this trade happens don't be a winner but the amount of loss is up thinking about testing the amount of breakevens you take this just happens to be a winner so ultimately it is the probability model just plain app so you just have to bear that in mind yeah so you can see the reason why I'm not forecasting at this stage is well right by the way is that will qualify under the move some personally not looking for any more trades at this point so arguably this is actually approaching a valid trade in which if there's actually attracted up to the downside you can actually take that for a sell if we get a rejection or send in channel but for me personally we're quite far into the move I'm happy just managing this one trade so that's that's why if you were wondering yeah so right now you actually see that little ascending channel at the double top this will likely just drop out from here but I'm happy staying out the cell is that within my plan it is but it's quite far into the move like I said before so I'm happy staying out that if this was at the top that structure in these areas I'll be taking that for sure but right now I'm happy staying out that one drop to the downside cool it's gonna leave my stop in the same place because this could actually develop into a bigger structure so that's the others plays out yeah it's gonna leave everything where it is right now as we get closer you'll notice me just subconsciously start to get a little bit more aggressive so but right now we're just in that corrective phase happy to leave my stop here just be a little bit lenient with that because that can come back up and essentially tag you out and then drop so I'm just being a little bit lenient with that five-cent happy we'll have we locked in at this point if I was in the live market so just be looking for essentially this just a little bit more development here corrective mention - then drop once again I've seen this so many times where if you lock in profit in not to go off on a tangent here but so many times I've locked in profit just above the hang price tags you out because you know correct price just music both false breakout tanks you're out and then drop so that's why I'm being a little bit lenient with the price and that's what's with him up line as well c3 tip structure expect that to drop out very shortly it's actually forming continuations this actually could push iron yeah there we go you see that so exactly how I said before is that false breakout type action worry if you'd of trilled you stop down there I would have been out intentionally missed out on this profit here so hence why I'm just doing that drop in to the downside now evolving into a much deeper pattern here's where I'm gonna become a lot more aggressive especially if price breaks this low here this is an interesting one yeah so right now there's two things they might here we can either create a reversal type structure and watch this actually just corrects the decent information maybe a double bottom something and then pops to the upside or this actually creates a smaller corruption in which case are still locking profit and then that could drop out so two things in mind but because we haven't had the completion of this pattern essentially in which we've only had the one on the two expecting this to come back up to the third this wouldn't be unusual for this this corrective nature because if I just look at this from one from an intial standpoint this back being in the cell this can quickly become a bigger middle section of the pattern in which this actually pushes back up so although I'm on the cell it's very easy to get bias when you're in the cell just take a step back let's actually drop to the daily chart again just to see how price is looking yeah this could do either thing this could have a drop or push the upside so it doesn't really matter at this point it will just react accordingly no I guess interesting so walk in profit above here you'll see me naturally becoming a lot more aggressive there and if you look at this to quite start to form this descending formation as well so yeah I'm happy walking a bit more frothy at this point why just because to create that decent information is almost giving us this little arc in nature to push up so this will be interesting so I'm just gonna lock in profit in a way that if this was to develop into a smaller flag based on this nature and this drops from here that's still gonna mean the trade but also taking a message from the market if this doesn't move to the upside then I mount the trade for a nice profit so I'm happy with that bring this down cool so like I said before this was having to pop to the upside or correct corruption it was actually looking more so like a correction but I wasn't worried that this was obviously quiet it came from an impulse so we'd have this quite a behavior here it come from the impulse and then this is a essentially a pattern of a song in which that starts to correct that dissent so that's why I just was a little bit more aggressively down so you can see so that turned up quite nicely you didn't have to do that could've been one person that could been 3% they actually turned out quite nicely attempted 10.1 8 so that's quite nice so simply all I do once I'm at the trade is I'm just gonna clear things up just a little bit keep this rail line in here and I'm just gonna take another screenshot for the spreadsheet I'm going to copy this once again same process copy that into the after screenshot and then all we're gonna do if we just check on this right now we can see that it's a very clean great job so we can see that 1 2 3 cleant agree shot we know exactly what we're looking for and then we're just gonna fill in a little bit data here just so that we know why we're going to trade in the first place to panel z-direction short entry date what was that the 29th of January 29th of January 2019 and then the exit date was the six of em so six of February 2019 stop-loss what was that that was four four nine two forty five great in my planet that's a high probability setup just based on the higher time frames just based on this pattern so that would be a high prob setter for me is that based around that plan yes it is status what was that a win-loss breakeven win and then it was was at 10.25 at 10:45 7.25% profit so as you can see that's just been added to that but means adjusting but you can see we just will redo this 10:25 there we go so just need to correct him and save me this but you can see one trade top ones and then profit lost 10.25 so that's the trade so that I just repeat the same process over and over again and one thing I want to point out as well this is probably the most important point of this video and this is where I've slipped up is falling past when you're back testing how long we'll be gun free we've been through like a month of data right and we've taken one trade but it wouldn't be unusual for you to take three four five six trades within a three-month period why you've got to be careful of doing is not transferring that same mindset into the light markets because you can bat test a three month period with it pretty much two hours but you have to bear in mind is that the time differences are obviously different in the live market so don't take that same so I told you into the markets that couple over the course of two days I'm going to take a trades because it's probably the case we need to approach it in the fact that you've just gone through three months of data with impact testing so hopefully that's explained a little bit well but just something to bear in mind that's probably the most important thing because the amount of times I'd spent so long Batterson and have that same mindset just transfer over to live markets is canon so you just have to be aware of that and always always treat that person as if you're a trip though in the light markets so hopefully that helps oh yeah you can see that's just one trader we could arguably go through this all day but you just need to see one example to see how I got tests and this is my process feel free to do different things and this is as I said at the start of the video this is the more generalized approach to back tested so far testing the strategy go to setups and things like that what we're going to get into in the next episode which is going to be really exciting this gonna be how to back test hair behavior and how to back back test pair characteristics because just off the top of my head Pando see behavior and powders characteristics in this path is going to be completely different to something like Ozzie yep or your Ozzie like they're completely different paths and they all have different nature and then react different to different situations so hopefully that is gonna help so really hope you've enjoyed this episode regarding by testing hope hopefully you've taken my notes of value and just inside to how I do it so really looking forward to the next episode which it can be more so pair behavior characteristics and go to setup so that's gonna be sick but yeah hope you enjoyed this video have a great week and their speech will soon [Music] [Music]

Channel: Michael Bamber

Views: 139,689

Keywords: how i backtest a forex trading strategy in 2020, how i backtest a forex trading strategy, how to backtest a forex trading strategy in 2020, how to backtest a forex trading strategy, how to backtest a trading strategy, how to backtest a trading strategy tradingview, michael bamber, michael bamber backtesting, backtesting a trading strategy, backtesting forex, backtesting, forex, forex trading, forex trader, forex journey, my forex trading journey, the trading essentials

Id: 2788zDYqfUQ

Length: 37min 8sec (2228 seconds)

Published: Wed Feb 05 2020