Forex Escapades

Strategy Testing in MetaTrader 4

2006-05-30T23:59:00.001+09:30

I am sure anyone who is reading this document knows MetaTrader has a feature which allows you to back test your strategies. This is called the Strategy Tester, it can be accessed via the view menu or by the keyboard shortcut CTRL+R. Below is a screenshot showing the Strategy Tester interface:

This article is focused on improving the reliability of this tool. It does not however go into any detail about optimization. Firstly we will run a back test using a simple Expert Advisor with the standard default settings in MetaTrader the data centre being used is the InterBankFX data server. We will then import Alpari data and compare the results.

Standard Data

For the first test we set up with the Currency to be tested the AUD/USD. The period we use is daily and the model we use is every tick (based on all available least timeframes with fractal interpolation of every tick). The time period we will be testing is from 15/06/2004 to 28/05/2006. We use the simple MACD Expert adviser. The following summarizes the results obtained with the demo data:

Strategy Tester Report MACD Sample

Bars in test	559	Ticks modelled	4263759	Modelling quality	42.15%
Initial deposit	1000.00
Total net profit	470.00	Gross profit	635.00	Gross loss	-165.00
Profit factor	3.85	Expected payoff	26.11
Absolute drawdown	0.00	Maximal drawdown (%)	165.00 (11.1%)
Total trades	18	Short positions (won %)	12 (100.00%)	Long positions (won %)	6 (83.33%)
		Profit trades (% of total)	17 (94.44%)	Loss trades (% of total)	1 (5.56%)
Largest		profit trade	50.00	loss trade	-165.00
Average		profit trade	37.35	loss trade	-165.00
Maximum		consecutive wins (profit in money)	13 (481.00)	consecutive losses (loss in money)	1 (-165.00)
Maximal		consecutive profit (count of wins)	481.00 (13)	consecutive loss (count of losses)	-165.00 (1)
Average		consecutive wins	9	consecutive losses	1

Improving Modeling Quality

As we can see from our test the modeling quality was 42.15%. I for one would want to have a much better modeling quality then 42.15%. The one minute data we have from our demo feed has several gaps in it for one reason or another. These gaps reduce the quality of our modeling as the strategy tester will interpolate the areas between these gaps which may or may not trigger invalid buy or sell signals.

Gap filling (the free way)

If you want to improve modeling quality without spending vast sums of money you have come to the right place. A great free source of 1minute data for MetaTrader is alpari’s databank. Most currencies are available as well as Gold and various CFD’s.

Step By Step Setup Guide

Step One

The first step is to download the 1M currency data for the desired currency pair. You can access this data at http://www.alpari-idc.com/en/dc/databank.php. Or via the direct links below:

These files will be in a zip format. The first thing you will need to do is un-zip the file. You should now have a .hst file.

Step Two
We now need to prepare MetaTrader for this new data. We change the default max bars in history, in order for our modeling to be more reliable. To do this we go to the tools menu then options or use the keyboard shortcut CTRL+O. The following toolbox should popup:

Click charts tab, now in the charts tab in a field called Max bars in history change that field to 2147483647. (This is the maximum value MetaTrader will accept).

Step Three

Now we are ready to import our data. To do this we go to History Centre. This is in the tools menu or can be accessed via the keyboard shortcut F2, the History Centre screen will pop up as shown below:

Double click on the Forex button shown above this will cause the currency symbols to dropdown. The next step is to double click on the currency you have downloaded the data for. This will open a drop down menu with the different timeframes. Double click on the 1 minute timeframe. Then click on import button and then browse button to locate your .hst file then click OK (Note: If you don’t see your .hst files you need to click the file types dropdown menu in the open dialog box and select MetaQuotes files(*.hst) ). You can now close the History Centre window.

Step Four
Now we have our data imported we need to open it as an offline chart. To do this we go to the file menu and click open offline. This will open a new window click on the one minute timeframe for the currency and then click open. This will then open a new chart as shown below.
Step Five
The next step is to convert the period using period converter script. To do this with the offline chart shown above, Double click on the period converter script. This will bring up a new window like the one shown below:

You need to click the inputs tab shown above and then in the values field insert the number of minutes you wish to convert the data to, and then click Ok. Do this for the following values 5, 15, 30, 240 and 1440.

Note: There will be no visible change to chart window, however in the log file of the terminal window you can confirm that the records have been successfully written. When you run the period converter script for the second and subsequent times a dialog box will appear asking if you want to replace the current period converter script you need to click yes to convert the next timeframe, make sure the previous period converter script has already finished.

Step Six

Congratulations you got this far preferably without tearing your hair out. Now we have reached our final step testing our new data. We rerun Strategy Tester with our original settings (Make sure the recalculate textbox is highlighted or you will just be using old data). Now sit back with your beverage of choice as Strategy Tester go to work. Remember to always make sure the model you use is every tick (based on all available least timeframes with fractal interpolation of every tick).

Step Seven
Repeat steps 1 to 6 for every currency you wish to test.

Conclusions

As a point of comparison I ran strategy tester with exactly the same settings with Demo data as shown page 2 and the Alpri data shown on the following page. As you can see there is a 30% increase in modeling quality with the Alpri data, this is still only 72.4% modeling quality. This of course is not optimal however it is better then the alternative. In dollar terms using the Alpari data a historical profit of USD$385 was recorded. In contrast using the demo data a profit of USD$470 was recorded. This may seem like a small amount however if the tests were extended to longer timeframes it would be much more significant. A final note back testing is better then no testing however it should be used with caution even with 99.999% model quality and a profitable EA it is no guarantee that your strategy will perform well LIVE. It is always a good idea to forward test with a mini account.

Strategy Tester Report MACD Sample (Alpari)

Bars in test	511	Ticks modelled	994306	Modelling quality	72.41%

Initial deposit	1000.00
Total net profit	387.00	Gross profit	583.00	Gross loss	-196.00
Profit factor	2.97	Expected payoff	21.50
Absolute drawdown	0.00	Maximal drawdown (%)	196.00 (13.5%)

Total trades	18	Short positions (won %)	10 (100.00%)	Long positions (won %)	8 (87.50%)
		Profit trades (% of total)	17 (94.44%)	Loss trades (% of total)	1 (5.56%)
Largest		profit trade	50.00	loss trade	-196.00
Average		profit trade	34.29	loss trade	-196.00
Maximum		consecutive wins (profit in money)	13 (452.00)	consecutive losses (loss in money)	1 (-196.00)
Maximal		consecutive profit (count of wins)	452.00 (13)	consecutive loss (count of losses)	-196.00 (1)
Average		consecutive wins	9	consecutive losses	1

Disclaimer: Forex trading is risky. The high degree of volatility within the Forex market largely within the intraday market, coupled with ability to leverage your positions means that losses can be greater then your initial investment. This article is for educational purposes only and does not constitute financial advice.

Realtime Candle Stick Charting

2006-05-30T16:28:00.000+09:30

The following currencies and indexes can be viewed in 1 minute, 5 minute, 15 minute, 30 minute, 1 hour, 4 hour, 1 day timeframes :
AUD/USD, USD/CAD, USD/CHF, EUR/USD, USD/JPY, GBP/USD, GBP/JPY, EUR/JPY, EUR/GBP, INDU, NASDC and S&P500.

Daily Commentary

2006-05-23T11:43:00.000+09:30

Learning to trade the EUR/USD

2006-05-22T01:17:00.000+09:30

The next six trades I will summarize as one as the are all related. I entered into an initial long position the EUR/USD of 5 lots at 1.2733 20 minutes latter I bought another 5 lots for 1.2736 then three minutes latter I bought two lots at 1.2723 then a minute latter I bought 1 more lot this time for 1.2720 finally ten minutes latter I bought three more lots at 1.2706. Now I have the sum total of 16 lots invested or 1.6 Million USD. Why so many lots you ask? I had extremely strong buy signals backed up by fundamentals. Below shows you the chart:
I scaled out of my positions at the following levels:

10 lots at 1.2745 or 21 pips
3 lots at 1.2739 or 51 pips
3 lots at 1.2730 or 24 pips

This trade ended well with a profit of USD $2280. Looking back at this trade now I think that my risk level was fairly large. My money management is something I need to think about.

The Short EUR/USD
I have included this next trade as it is related to my block of trades above. After exiting my long positions on the EUR/USD I shorted 10 lots at 1.2759 with a take profit 1.2745. This was a short time scalp taking advantage of the volatility. As can be seen in the chart below:
This trade made a quick 14 pips or USD$1400. The EUR/USD is a very volatile pair. I think I will stick to the AUD/USD for a while longer. So far my current P/L is at USD$4350.

Short AUD/USD Sticking to the plan(At any cost)

2006-05-22T01:00:00.000+09:30

If you have read any of my past trades you would see that I have lacked discipline and have acted with fear. This trade I was detrimened to let run NO MATTER WHAT. I sold 3.5 lots at 0.7699. My stop loss was set 0.7710 and my take profit at 0.7694. I thought this would be a quick little scalp. The chart shown below:
As you can see from the chart above my quick little scalp turned into a USD$385 dollar loss. However despite this loss I am happy as I did not intervene with fear. I let the trade run it's course and even though I took a loss I stuck to my plan.

My First Trade on the EUR/USD

2006-05-22T00:41:00.000+09:30

Well what can I say about this trade. I should have never entered it to start with. I sold 3.5 lots 1.2780 with my stoploss at 1.2790 with my take profit at 1.2770 and once again as in my previous post I lot my fear and emotion take over I exited the trade once it came into a small 3 pip gain. This is something that I need to work on. Below is my chart of this trade:
As you can see my take profit would have been hit if only I didn't intervene in the trade. I exited with a profit of USD$105.

Lack of Discipline on AUDUSD Short

2006-05-22T00:20:00.000+09:30

My Second Trade was a 3.5 lot short on the AUD/USD. I sold at 0.7728 set my stoploss at 0.7755 and my take profit at 0.7715. During this trade I decided to take a small profit early instead of risking the trade turning around on me. The chart is shown below:

As you can see from the chart above if I had the discipline to see this trade out it would have hit my take profit. This trade ended in a profit of USD$140. My running total of profit USD$1050.

AUD Long Past Trades

2006-05-22T00:06:00.000+09:30

As I said in my previous posts My old account was deleted. This is my new demo account using SBFX. My First trade was on the Australian dollar I went long at 0.7654. Once my trade started to go into profit I moved my stop loss to 0.7680. Below is the chart:
My Take profit was 0.7690. As you can see from the chart above my stoploss was hit by volatility. I had 3.5 lots invested therefore I made a profit of $910. From this trade I learnt that at certain times tight stop losses will be hit by volatility.

Removed account

2006-05-19T12:51:00.000+09:30

Well it has been a very busy time since my last post. I was a bit annoyed as my InterbankFX demo account was deleted I have since contacted them about this issue to no avail. I have since switched to StratergyBuilderFX version of MetaTrader as they are much more reliable. They also have the spot Gold prices. Below was the last statement I saved from my since deleted account.

Here is the equity curve

Here is the P/L details:

Gross Profit: 3 050.00
Gross Loss: 921.90
Total Net Profit: 2 128.10
Profit Factor: 3.31
Expected Payoff: 106.41
Absolute Drawdown: 0.00
Maximal Drawdown (%): 460.00 (7.0%)
Total Trades: 20
Short Positions (won %): 11 (54.55%)
Long Positions (won %): 9 (100.00%)
Profit Trades (% of total): 15 (75.00%)
Loss trades (% of total): 5 (25.00%)
Largest profit trade: 680.00 loss trade: -260.00
Average profit trade: 203.33 loss trade: -184.38
consecutive wins ($): 7 (1 530.00)
consecutive losses ($): 2 (-460.00)
Maximal consecutive profit (count): 1 530.00 (7)
consecutive loss (count): -460.00 (2)
consecutive wins: 4 consecutive losses: 2

Fairly average returns but it is a learning process.

AUDUSD 153 pips or USD $1530

2006-04-25T23:36:00.000+09:30

It has been a while since I have posted. It has been a fairly profitable two days I have posted my profit loss below. When I get some spare time I will try to detail the more profitable ones. I am currently digesting Ryan Jones book The Trading Game, some good money management tips. My system is still in development, testing, testing but it looks promising. below is my statement.

Interbank FX, LLC

Account: 1017838		Name: None						Currency: USD

Ticket	Open Time	Type	Lots	Item	Price	S / L	T / P	Close Time	Price	Profit
640894	2006.04.08 06:30	balance	5 000.0
847581	2006.04.13 01:47	buy	4.00	audusd	0.7293	0.7270	0.7315	2006.04.13 08:26	0.7301	320.00
992262	2006.04.17 15:18	sell	1.00	audusd	0.7377	0.7397	0.7352	2006.04.18 00:27	0.7397	-200.00
1217044	2006.04.20 08:24	sell	1.00	audusd	0.7443	0.7455	0.7430	2006.04.20 09:49	0.7430	130.00
1275271	2006.04.20 23:21	buy	1.00	audusd	0.7376	0.7340	0.7405	2006.04.21 05:41	0.7379	30.00
1289569	2006.04.21 05:41	sell	1.00	audusd	0.7378	0.7398	0.7358	2006.04.21 08:03	0.7398	-200.00
1306084	2006.04.21 08:28	sell	1.00	audusd	0.7400	0.0000	0.0000	2006.04.21 08:28	0.7406	-60.00
1306169	2006.04.21 08:29	buy	1.00	audusd	0.7405	0.7369	0.7475	2006.04.21 13:06	0.7427	220.00
1370949	2006.04.24 04:33	sell	1.00	audusd	0.7447	0.7492	0.7405	2006.04.24 13:36	0.7440	70.00
1371292	2006.04.24 04:44	sell	1.00	audusd	0.7452	0.7492	0.7405	2006.04.24 13:35	0.7436	160.00
1375897	2006.04.24 06:42	sell	1.00	audusd	0.7463	0.7492	0.7405	2006.04.24 13:35	0.7436	270.00
1378968	2006.04.24 06:53	sell	1.00	audusd	0.7470	0.7500	0.7405	2006.04.24 13:35	0.7435	350.00
1456620	2006.04.25 02:43	buy	1.00	audusd	0.7455	0.7435	0.7480	2006.04.25 13:42	0.7473	180.00
1474562	2006.04.25 09:27	buy	1.00	audusd	0.7449	0.7424	0.7477	2006.04.25 13:29	0.7477	280.00



Deposit/Withdrawal:		5 000.00		Credit Facility:				0.00
Closed Trade P/L:		1 548.10		Floating P/L:				0.00
Balance:		6 548.10		Equity:				6 548.10

Gross Profit:		2 010.00		Gross Loss:				461.90
Profit Factor:		4.35		Expected Payoff:				119.08
Absolute Drawdown:		0.00		Maximal Drawdown (%):				301.90 (5.7%)

Total Trades:		13		Short Positions (won %):				8 (62.50%)
Profit Trades (% of total):								10 (76.92%)
Largest		profit trade:						350.00
Average		profit trade:						201.00
Maximum		consecutive wins ($):						7 (1 530.00)
Maximal		consecutive profit (count):						1 530.00 (7)
Average		consecutive wins:						3

Ichimoku Kinko Hyo

2006-04-20T19:53:00.000+09:30

This trade I was going for a much smaller gain. With the help of indicators my entry point was clearly defined entry point when the Tenkan-Sen (red) crossed Kijun-Sen (blue) and the Chinkou-span (Lime) gave strength to the sell signal backed up by the trend in the four hour chart.

Sell 1 lot AUD/USD

Price: 0.7443

Stop Loss: 0.7455

Take Profit: 0.7430

Outcome t/p hit no emotional intervention a 13 pip gain or $USD130 gain. I will continue to investigate the Ichimoku Kinko Hyo indicator.

Second Trade

2006-04-19T14:30:00.000+09:30

My second trade
Now here is where it gets interesting. I decided to short AUD. I didn’t use any indicators or fundamental analysis I just entered the trade. I did luckily have a stop loss in place.

Here it is:
Time Open: 15:18 GMT 17/04/06
Initial Price: 0.7377
Stop Loss: 0.7397
Take Profit: 0.7352

Potential downside: USD$200
Potential Upside: USD$200
NOTE: A 25 pip gain is really only 20 pip gain due to the five pip spread on the AUD/USD

Below shows the chart when opened:

The stop loss was hit and my loss from this trade was $210 plus $1.90 swap. This will be my last trade until I gain some knowledge on the use of indicators. It is only pure luck that my account balance is positive.

The 24 Hour Market

2006-04-15T11:40:00.000+09:30

I was told about an excellent free tool for showing the time in different countries. It is a windows XP application called Zone Tick. It allows you to display any time zone you want in your taskbar. As the image shows:

ZONETICK

Post Trade Wrap

2006-04-14T15:44:00.000+09:30

It turns out that I made the right decision to close out my trade for an 8 pip
gain as you can see in the chart below I would have been stopped out at about
10:00 GMT for a total loss of $920. Dodged a bullet lesson learned. Start off
trading one lot. Chart below:

My first entry into the market...

2006-04-13T17:18:00.000+09:30

I have decided to focus my attention on the AUD/USD. While I research Technical Analysis I will trade using mainly fundamentals. At this stage I am developing my trading plan so I am just testing the waters and seeing how I go.

Trade Buy AUD/USD

Time: 13/04/06 1:47 GMT

Price: 0.7293

Stop Loss: 0.7270

Take Profit: 0.7315

Number of Lots: 4

Profit loss per pip: USD $40

Max potential loss: USD $920

Max Potential Gain: USD $880

I think that I have to take a serious look at my risk reward ratio. The reason that my stop loss is greater then my potential profit is that I don’t won’t my position to get stopped out by market volatility.

I invested four lots as I am very confident that AUD will appreciate given high commodity prices and the widespread thought among analysts of a 25 basis point interest rate hike next time the reserve bank meets. I think the dollar is under priced. Investing four lots was probably excessive given I only have USD $5000 in my demo account.

Below shows the 15 minute chart at the time I opened my position:

I closed out my position as I don’t think it would reach my take profit before US market opened. Profit USD $320 8 pips. Parting thoughts: A fairly good entry, poor exit and poor money management. Risk level of trade high. It is all a learning experience though. Below image of closed position:

Pip calculation

2006-04-13T16:24:00.000+09:30

A pip is the smallest increment a currency can move. Currency is usually quoted to four decimal places.

e.g AUD/USD 0.7293

A pip represents a $AUD 0.0001 in above example.

Now we know what a pip is. What is it worth?

We divide one pip by current price: AUD/USD 0.7293

0.0001/0.7293= AUD $0.00013712

Now we convert to USD (or whatever currency your account is in)

0.00013712 * 0.7293 = USD $0.0001

We now multiply by lot size to get the profit/loss from one pip.

0.0001 * 100 000 = $10 per pip.

More in depth explanation can be found at Baby Pips.

Trading Times..

2006-04-13T15:13:00.000+09:30

From what I have read the time of day in which you trade is crucial. The following shows the opening and closing times of a few key markets:

Country	Open GMT	Close GMT
Tokyo	0:00	9:00
London	8:00	17:00
New York	13:00	22:00

As I live in Australia our market opens one hour before Tokyo and New Zealand opens two and half hours before us. I am yet to define the time I will trade.

First steps...

2006-04-08T15:53:00.000+09:30

An excellent resource for any newbie like me is baby pips. This site assumes you have no prior knowledge and is very helpful indeed. I have installed MeataQuotes 4 and signed up for the interbankFX data feed this is the first image you will see when you open the program:

To the left of the window we can see the market watch window. This is enlarged and shown below.

We can see that for each currency pair there is a Bid and Ask price. The Bid price is the price that the broker or dealer is willing to pay you for the currency and ask price is the price in which the dealer or broker is willing to sell the currency for. Notice there is a difference between the bid and ask prices, this is know as the spread. The spread is what the dealer broker makes. Based on the above table we can see that different currencies attract varying spreads:

GBP/USD 4 pips
EUR/USD 5 pips
USD/JPY 3 pips
AUD/USD 5 pips
USD/CAD 5 pips
EUR/GBP 4 pips
EUR/CHF 4 pips
EUR/JPY 4 pips
GBP/JPY 9 pips
GBP/CHF 7 pips
EUR/AUD 8 pips