The Pros and Cons of Forex Metatrader 4
There are various ways to review trading systems, the most common being back testing and demo-ing. Many people hold the belief that “if it ain’t broke, don’t fix it.” Likewise, if the system does not work, a revision of the system is needed.
Benefits Of Doing Demo-ing and Back-testing Evaluations
1. History is known to repeat. When you do a back-test, you can spot any patterns that seem to be repeating.
2, Max draw-down ratios can be provided to investors, letting them know exactly what these systems can provide them.
3. Trust is built that can sustain the investor while waiting for results. This trust allows the investors to take chances they may not have otherwise taken when trading.
4. Using back-testing investors can replicate the performance statistics of a system, allowing them to accurately estimate the probability and magnitude of any possible trade profits.
Disadvantages of Backtests and Demos
1. Spreads
Spreads can narrow at the slightest sign of surprising news. You might also find differences in the spreads between night and day. The bid and ask prices of the trades might not be able to truly reflect the spread width.
When back-testing, you won’t be able to tell as well just how these conditions will turn out, making them unreliable.
2. GMT Offset
Daylight Savings Time in the U.S. and U.K. may cause the server to fluctuate. The time on the tables will likely not align with the historical data. The result of the time difference is that those tactics utilizing blocks of time in their equations to determine pricing will be skewed.
3. Manipulation By Brokers
There are some brokers who will present nearly ideal trading conditions during a back-test or demo test. However, in live trading ideal conditions are not a reality. The brokers preform this manipulation in order to make more traders want to utilize their services. You can get more information on this topic through online forex forums.
4. Trade Entry Strategy
Trading live may not give you the opportunity to purchase at the price you expected based on the system used to compare data. Truthfully, the market price being in a constant state of flux is not conducive to physically initiating the trade at the optimum amount. Live trading allows for disparity in prices from demo-ing or back-testing.
Conclusion
By knowing what limitations of back tests and demo test have, investors will be able to gain a better understanding of how different trading systems work and how to gain a better evaluation of a system. Even with these limitations, it is important to understand that back testing does work.
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