How to Test Stock Indices Strategy - Testing Stock Indices Trade Strategies
Generating Stock Indices Trade Signals with a Indices trading Strategy is one of the easiest method to trade Stock Indices, it is the best way that a Indices trading beginner can attempt to determine the direction of the Indices market trend with a good level of accuracy, & with a little back testing on demo account so that to gradually increase the level of accuracy of this Stock Index trading signals strategy
The best way to back test a Indices strategy is by following these two steps:
- Stock Index Paper Trade
- Stock Index Demo Trade
Stock Index Paper Trading- This method of testing a Indices trading Strategy involves placing your Stock Indices trading Strategy on the Indices trade charts, then take the Indices trade chart back to a particular date, 3 months back for example, & then using this Stock Index trade chart history to determine where your Stock Indices strategy would have given buy, sell & exit Stock Indices signals. Write down these points & the profit per Stock Indices trade transaction on a piece of paper and then calculate the total profit after you have recorded a good number of Stock Indices trades such as 50 paper trades Stock Index transactions & determine if your Stock Indices trading method is overall profitable, win ratio, loss ratio and the risk: reward.
This is an ancient method of testing Stock Indices Strategies that was used by traditional investors when there was no online exchange markets or computers for that matter, trader would use something like the A3 or A2 paper, graph format paper and plot the charts manually (Imagine plotting the charts on your Stock Indices trade platform by hand every day or every hour, would you be ready to do that? I doubt) Those investors were hardworking than most, some were so used that they still continue to paper trade the online Indices market and plot the Indices trade charts on paper, anyway for our paper method example, just a sample data of 50 Index trade transactions is all we need.
A good Indices trading tool to use to back test your Stock Indices Strategy is known as the MetaTrader 4 Step by Step Tool. Found in the MT4 Index trade charts toolbar of MetaTrader 4 Index platform, If you want to find the Indices trade charts toolbar on the MetaTrader 4 platform it is at the top of MetaTrader 4 trading software. If it's not: Click View (next to file, top left corner of MetaTrader 4)>>> Tool-bar >>> Charts. Then click the Customize button >>> Select Step by Step >>> Click Insert >>> Close.
MetaTrader 4 Software Chart Tool Bars - How to Trade Indices For Beginners
MetaTrader 4 Chart Tool Bars - Step by Step Button for BackTesting Stock Indices Trade Strategies Explained
Once you get this MetaTrader 4 Index tool you can move your Stock Indices trade chart backwards, & use this MetaTrader 4 Index trading tool to move the Indices trade charts step by step while at the same time testing when your Stock Indices Strategy would have generated either a buy or sell Indices trade transaction, & where you would have exited the Indices trade transaction, then write down the amount of profit/loss per Stock Indices trade transaction & out of a sample number of Stock Indices transactions you would then calculate the overall profits/losses generated by the Indices trading strategy.
If your Stock Indices trading strategy is profitable on the paper then, its time to demo Stock Indices trade & testing if the it is profitable on the real market as it is on paper method. This is the process of testing or back testing a Indices trading Strategy.
Maintain a Indices Trading Journal to keep track of profitable Indices trades, & determine why these Indices trades were profitable. And also keep a log of all losing Stock Indices trades, determine why these Indices trades made a loss & the avoid making these same mistakes the next time you trade using your Stock Indices trading strategy.
Tweak your Stock Indices trading Strategy until you get a good risk: reward ratio, with the Indices trading signals that you generate. Aim for a good risk: reward of 3:1 & a win ratio of above 70% is a good ratio, with good Indices money management even a Indices strategy with a win ratio of even 30% i.e. Less than half of your Stock Indices transactions make profit you can still make a profit. You might want to read this topic to know what the table below is all about: Risk : Reward Ratio.
Risk to Reward Ratio Chart of Money Management Strategies - Stock Indices Trade Strategies Explained
A manual Indices trading Strategy is still the best way to generate Indices signals compared to automated Indices trading Strategies, a manual Indices strategy is a better method & is also much simpler to implement.
However, other traders prefer automated Indices trading Strategies & for those then they can check the information on this page MQL5 Expert Advisors & automated Indices trading Strategies.
You can also view our extensive list of Stock Index trading strategies topics that provides you with various methods of buy & sell technical analysis using a number of diverse technical methods, go to the Indices Strategies Section.
