Why is it essential to test your trading system

June 21, 2018   /   by Marco  / Categories :  Business, Websites
Why is it essential to test your trading system

The moment you step into the Forex world you are exposed to risks. But what matters is how you manage yourself as a naïve trader in a risky environment. Whatever the strategy, system or technique you use it should be tested and practiced before you actually use it on the live account. What will happen if you don’t test the system or the strategy? Well, you would have to deal with a lot of risks if you don’t necessary measures. If you test the trading system you will be comfortable using it, and you can decide whether to stick to the system or not. This is similar to buying a brand new car, you wouldn’t miss test-drive it. It helps you decide whether to purchase or not. To check whether it meets your demands. To check whether it is comfortable. So likewise, there are many reasons why you would test drive a car. So it is the same case for the trading system. When you test the system, it creates confidence, you tend to learn the system, and you get to familiarize with the process. Testing the strategy is very important as it decides your profit or loss according to the market situation. Nevertheless, there’s more to learn about trading strategy.

Use the demo accounts

Demo trading accounts are often considered as the best way to master currency trading profession. You might have very little knowledge about spread betting industry but this doesn’t mean you will have to lose money in the real market. You need to open a demo account with the reputed broker like ETX Capital and trade with managed risk. Unless you can make consistent profit in the demo accounts for six consecutive months, you should never trade with real money. This is just like your practice field. Try to develop a simple but effective trading strategy and you will see a dramatic improvement in your career. Never let your emotions to trade on behalf of you. You should use your demo trading experience to control your greed in real life trading.

Step to test your strategy

This is actually a simple procedure. Being a naïve trader you should do everything after studying it completely. So when testing your strategy you should study it. If you want to gain profits you should use the right strategy. And follow the rules accordingly. This is why you should be aware of Forex trading tips when it comes to using the right strategy.  You should be able to use the strategy according to the market situation. Anyway, once you are comfortable with the trading strategy you can continue using. You can use demo testing which would cost money and then, you have live testing which can cost you a small amount. If you are live trading you shouldn’t risk a lot at the very beginning rather you should use small trade positions. Also, you must have the track of post and pre-trades. If you record the process of the strategy you will be able to analyze whether it works or not. It can save future costs.

Step to test your strategy

Measure the profitability

The ultimate goal of checking a new strategy is to decide whether it is profitable or not. You should be able to measure the profitability of the new strategy. If you have entered into more trades, it is possible to make accurate decisions. So for an amateur trader, we would recommend using the demo account to test the strategy.

Make a final decision

Usually, traders test a strategy to decide whether it can be used in trading on the long-term basis or not. So when testing you should focus on these factors net profit, losses and profits, trade length, and risk-reward ratio. Once you have tested you will find solutions to all these factors and based on it you can make a final decision.

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