If you are interested in testing strategies in MetaTrader 4, you can run backtests on historical data. This data can be downloaded using the tools inside the Metatrader platform.
It’s a good practice for the people developing the expert advisor to run back test to see that the software functions properly. Often, the backtest data shows a profit which is simply not realistic enough.
Keep in mind that back testing is not live trading at all. In real life trading we deal with circumstances that are not duplicated in test mode. Some times we may loose our connection, or it may perform too slow at times. There may be technical issues all the way between your platform and the broker’s server.
Historical data do not include the spread. This inflates your P & L display. The expert advisor may use current spread data which also throws the numbers off as well.
Tests on historical data do not reflect situations as the broker not being able to do the buy or the sell at the requested price. Limitations in the market, liquidity, data delays etc.
Also worth mentioning, is that the size of each trade that your expert advisor buys or sells may not necessarily be supported by a given broke, thus inflating an indicated profit.
To get the best feel for how an expert advisor would perform, test it using demo accounts on live trading situations. Spend plenty of time doing so until you have found your successful formula.
Another way to get performance information about an expert advisor is to see how it performs in forward testing.
You can’t always rely on the back test data results when it comes to picking and choosing an expert advisor. Doing so could set you up for disappointment. The key to not getting duped is to look at all the available information most notably the real live trading and forward testing results.
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