Best Forex Backtesting Software

Why Forex Backtesting Matters

In forex backtesting, traders use historical data to determine how a trading strategy would have performed in the past. Essentially, backtesting applications apply technical rules to historical price data and analyze the returns that a forex strategy would have produced over a period of time based on those rules.

There is a great deal of value in backtesting. The story is repeated hundreds of times, someone investing thousands of dollars they can't afford to lose on a strategy they don't even understand. It is common for them to lose a lot of money very quickly, become greedy, invest more and lose even more.

Generally, most trading strategies offer very little advantage over the long run (years). Some traders lose all faith in their strategies after experiencing a few weeks of drawdowns because they haven’t tested them. On the other hand, if you knew that in the last 10 years your strategy would have made 50% per year on average, with only 16% drawdown, then you would still believe in it despite experiencing an 8% drawdown.

Additionally, backtesting allows you to tweak aspects of your trading from a psychological standpoint. Imagine that you trade the JPY during London open a few times a month. What if you are losing 90% of your trades, out of session, and your overall win rate changes drastically? Do you have any way of knowing this? Backtesting and data analysis are great ways to find out.

7 Best Forex Backtesting Software Providers

MetaTrader

Many forex traders around the world use MT4 for backtesting their trades. Traders can rewind the time on the chart and replay the market on any historical date by using the Forex Simulator included in the trading platform. You can open orders, modify them, and close them just as you would in live trading conditions with the Forex Simulator.

Trading historical data has several unique characteristics. First of all, it saves a lot of time compared to demo trading. The time frames can even be set to your comfort level so that you can focus solely on what is important. Additionally, MetaTrader 4 has a number of useful tools and indicators that can be highly useful for backtesting trading strategies.

It is very easy to use Strategy Tester on MetaTrader 4. Using the 'View' option, look for the Strategy Tester option and select it. With just a few clicks, you can adjust the settings according to your needs.

MetaTrader 5 is also a very popular Forex trading platform. The MetaTrader 5 platform was developed by the same company that developed MT4.

The MetaTrader 5 trading platform offers traders several additional features with a user-friendly interface. The backtesting tools offered by MetaTrader 5 are similar to those offered by MetaTrader 4. The tools have proved to be successful and secure.

Forex Tester

Among all financial markets, the forex market is the most liquid. Forex is also one of the most volatile markets, making it unique among other financial markets. The best backtester for forex traders shows how your strategy will perform in this fast-paced market.

The solution is Forex Tester. You can use it to test how your strategy will perform as you trade currency pairs rather than stocks. It is easy to interpret the results, which makes pinpointing areas for improvement easier.

Furthermore, Forex Tester is a dedicated backtesting platform that does one thing well: backtesting. Forex Tester is one of the most intuitive backtesting tools on the market because it is dedicated to building the best backtesting tool for forex trading.

The base software for Forex Tester costs $149 one-time. There are limited capabilities with the basic tester. It is best to use the software in conjunction with the $29.99 monthly Super data package.

TradingView

Whether you are a beginner looking for a free backtesting solution or an expert looking for a fast solution, TradingView might be just what you require.

There are four tiers of service offered by the company, but you won't need them if you're just interested in backtesting trading strategies. You can customize the tool completely and it is one of the easiest to use.

Color-coded charts make TradingView's backtesting results easy to understand. Using this method, you can quickly visualize how your strategy performed during testing.

Microsoft Excel

No introduction is necessary for Microsoft Excel. There is no doubt that it is a dominant piece of software in the world of business and investing. The use of Excel spreadsheets is diverse, ranging from simple budgeting to complex trading strategy backtesting.

On Excel, you can create a backtester that you can use on any asset or financial market. However, you don't have to build your own. Backtester templates are available online in multiple formats. You can find plenty of templates and how-to guides on backtesting templates for Excel by searching your favorite search engine.

One-time purchases of Microsoft Excel cost about $150, and upgrades are required periodically. Microsoft 365 is available for $9.99 per month as an alternative.

TradeStation

TradeStation is a leading day trading brokerage. As well as traditional investments such as stocks and ETFs, it offers access to trade newer asset classes like cryptocurrencies.

TradeStation's free backtesting tool is an impressive part of its offering and benefits from being a broker-connected tool. With TradeStation's decades of market data at its fingertips, it has unfettered access to a treasure trove of information.

For easy visualization, TradeStation displays backtesting results in color-coded charts and graphs. When you click on a trade, you can see further details such as the size of the trade, the holding period, and entry and exit indicators to help you optimize your trading strategy.

Soft4X

Soft4FX is a great place to begin if your budget is very strict. There are various options available to traders using the software. Furthermore, it promotes competition, which generally leads to better products in the area.

Likewise, if you enjoy using MetaTrader, and you think Soft4FX's features are adequate, then it may be a good option for you.

This is also a great tool to use for secondary backtesting. Perhaps you travel with a second laptop or Windows tablet that you can use to play around with some ideas.

With Soft4FX, you won't have to pay more for a license than with one of the more expensive providers. Due to its dual license, it could even be installed on two secondary computers.

Ninja Trader Profit Finder

Backtesting is made easier by the availability of many programs, as we have already noted. Among them is the Profit Finder, which is a backtesting software for NinjaTrader. In addition to being available for numerous devices, you can also download the Mac version of this Backtesting software for Mac OS.

This Forex trading software is very popular among traders because it identifies the profit and loss associated with the strategy. There are many fields you must enter into the software, including account size, ideal entry and exit points, trailing stops, take-profit levels, back-testing hours, profit targets, and slippage.

The Profit Finder's greatest strength is its ability to provide detailed information and insight about a wide range of assets. Additionally, NinjaTrader offers many additional indicators for better results.

Profit Finder has several key features. As an example, it can perform complex calculations in just a few seconds, thus making it useful for traders. Every position can also be calculated based on profit and loss levels.

How to Choose Forex Backtesting Software

There are many factors to consider when choosing a tool to backtest the forex market. In spite of the fact that backtesting is, in essence, a very simple process, the quality of the data is extremely important. It is possible for your backtesting results to go wrong, which could lead to huge losses on live markets if they do.

How to Backtest Your Strategy

There are four steps you might need to take when manually backtesting a trading strategy. Whenever you do your own backtest, you will first need to open a chart and scroll to the previous period.

In this process, ensure that all indicators used for the strategy are applied to the chart as well. Moving the chart bar by bar is the second step to identifying possible setups.

Next, write down the results of your imaginary trade. Lastly, repeat everything until you find another possible setup, which you will record again. While time-consuming, this process is very rewarding.

What Are the Best Forex Pairs for Backtesting?

The best way to do back-testing is to focus on one currency pair at a time. Unlike live trading, back-testing allows you to move through any timeframe at your own pace, allowing you to control the passing of time. Rather than testing a strategy on multiple pairs at once, analyze one pair at a time.

It is very quick to perform backtests with the best tools listed above. In light of this, you should backtest as many currency pairs as possible. But again, be sure to focus on one pair at a time. It is quite common for experienced traders to trade strategies that are profitable on EURUSD and GBPUSD, but not on EURCHF and EURCAD. If you do not backtest the strategy on all of the currency pairs that your broker offers, you will never be able to determine this.

Backtesting Forex Strategies: Reasons to Start

Backtesting is a powerful tool that allows traders to analyze and evaluate their strategies using historical data. We will examine several convincing reasons you should start including forex backtesting in your trading routine.

Strategic Insight

Successful Forex trading is not merely a game of chance, it requires a strategic approach backed by solid data analysis. Backtesting software allows you to understand how your trading strategies would have performed in different market scenarios as well as to identify their strengths and weaknesses.

Practice

Backtesting has the added benefit of providing a great setting for practice. You may perfect your trading skills and fine-tune your approach without putting your hard-earned wealth at risk by testing your tactics in a simulated trading environment.

Confidence

Confidence plays a crucial role in trading success. Backtesting offers you the opportunity to validate and gain confidence in your trading strategies. When you see positive results from your back tested techniques, it instilled a sense of trust and conviction in your approach.

Identify Potential Pitfalls

Analyzing past data can help you identify scenarios where your strategies underperformed or incurred losses. This insight allows you to make adjustments and improvements to your strategies, ensuring that you minimize the risk of significant losses in actual trading.

Improve Risk Management

Backtesting enables you to assess and fine-tune your risk management techniques by analyzing past performance. You can experiment with different stop-loss and take-profit levels, position sizing, and other risk parameters to find the optimal balance between risk and reward.

How Often Should You Be Backtesting?

While professionals recommend a minimum of 500 transactions for a comprehensive backtest, the frequency ultimately depends on your chosen trading strategy. For newcomers to the world of backtesting, it's essential to understand what factors to consider when determining the ideal frequency.

Time Sensitivity

Different trading strategies have varying degrees of time sensitivity. Some strategies may rely on shorter time frames while others may focus on longer-term trends. Consider the nature of your strategy and assess whether it requires frequent backtesting or if it can be evaluated over longer time periods.

Account for Market Volatility and Cycles

Market conditions are never static, they go through cycles of volatility and stability. During periods of heightened volatility, more frequent backtests may be necessary and in calmer market environments, less frequent backtesting intervals may suffice.

Balance Time Commitment and Accuracy

Backtesting can be time-consuming, especially when analyzing a significant number of transactions. Aim to conduct a sufficient number of backtests to gain statistical significance while considering your available time and resources.

Continuously Evaluate and Adapt

As you gain more experience and gather additional data, re-evaluate your trading strategies periodically. Market conditions change, and what once worked may no longer be effective. Stay vigilant and be open to adapting your strategies based on the insights gained from backtesting.

Combine Backtesting with Real-time Analysis

Backtesting allows you to assess the historical performance of your strategies, but live market conditions may present new challenges. Use your back tested strategies as a foundation but remain adaptable and responsive to the ever-changing market.

Backtesting on TradingView

Backtesting is a crucial process for evaluating trading strategies, and TradingView provides a user-friendly platform that simplifies the forex backtesting experience. Let's take a look at how to go about it.

Turn on Bar Replay

To begin, launch TradingView and open a chart for the desired financial instrument. Locate the Bar Replay feature, usually found in the toolbar at the top of the chart. Click on the Bar Replay button to activate this feature, which will enable you to replay historical price movements and perform backtesting.

Adjust Settings

Click on the gear icon on the TradingView chart to access the settings menu to modify parameters. For example, you can modify the time frame, trading pair, and any indicators or drawing tools you wish to include in your backtest.

Click the Play Button

Locate the "Play" button on the toolbar to initiate the backtesting process. Click on the "Play" button to begin replaying the historical price action.

Analyze and Evaluate

As the historical price action unfolds, observe how your strategy would have performed in different market conditions. Identify strengths and weaknesses, and gain valuable insights to refine your approach.

Repeat and Refine

Backtesting is an iterative process that requires continuous refinement. Once you've completed an initial backtest, repeat the process with different variations of your strategy, adjust parameters, and explore alternative approaches.

Best Forex Brokers 2024

1

9.4/10

Go to broker

eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk. Don’t invest unless you’re prepared to lose all the money you invest.

Minimum deposit:

$50

Bonus for deposit:

0%

Regulation:

CySEC, FCA, ASIC

Review

The eToro broker was founded in 2007. The company promotes itself as a social trading platform working with traders from over 140 countries. The broker has several divisions operating under different jurisdictions and licensed by different regulators. For example, eToro (Europe) is licensed by the Cypriot regulator CySEC (109/10) and eToro (UK) is licensed by the British regulator FCA (583263). The broker also has a representative office in Australia and the USA. eToro Profile Details

Pros/Cons

•the minimum transaction amount for copying is $1;

•handy functionality for passive investing;

•regulated by independent monitors;

•it is possible to purchase contracts for fractional shares (that is, to invest amounts less than the cost of one share);

•it is possible to buy shares at once (not CFDs) on the US stock exchanges.

•high spreads;

•periodic technical failures in order execution;

•lack of the most popular platforms such as MetaTrader 4 and MetaTrader 5 in Europe and the CIS;

•no access to ECN systems, orders are processed only according to the STP (straight-through processing) scheme with access to specific liquidity providers;

•there is a commission for withdrawing funds;

•impolite support staff;

•inconvenient website.

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2

9.2/10

Go to broker

Your capital is at risk.

Minimum deposit:

No minimum

Bonus for deposit:

0%

Regulation:

FSC (BVI), ASIC, IIROC, FCA, CFTC, NFA

Review

The name OANDA is an acronym for “Olsen & Associates” or “Olsen AND Associates”. It is registered in the United States and provides its clients with a wide range of financial services in most countries of the world. The company was founded in 1996 and is currently regulated in four jurisdictions. The main regulator of the broker is the UK Financial Conduct Authority (FCA). Oanda Canada is licensed by IIROC. The company has several significant awards to its credit, including a victory in the category "Best Forex Trading Technologies" from the UK Forex Awards, "Best Trading Platform" from FX Week, as well as "Best Customer Service" from the US Foreign Exchange Report.

Pros/Cons

•Minimum deposit from 1 dollar.

•A large selection of the most popular trading instruments.

•Several reliable and reputable financial regulators.

•Inconvenient and poorly functioning site.

•Lack of cent accounts.

•Lack of bonus programs.

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