5 Quick Tips For Choosing the Best Software to Back Test Forex Trading Techniques

One of the major turning points in my quest to become a professional foreign exchange trader came when I discovered that there are easy and inexpensive ways to back test any foreign exchange technique or system. No more did I have to blindly take the word of that smooth-talking late night television guru, only finding out that his technique doesn't work after my trading account was completely depleted.

I knew that it was possible to back test trading strategies but it usually entailed a lot of programming or paying a ton of money for an online service or a complicated software package. In addition, many times the historical data had to be purchased separately.

But I believed that there had to be something out there that do not cost an arm and a leg. In my research I found several great products, so these are five specific tips for choosing an inexpensive yet functional software solution that will allow you to back test your forex trading strategies.

Tip One

You should figure out which type of trading suits you best, discretionary or systems based trading. It could be argued that all techniques can ultimately be considered discretionary so for the sake of this article, I will define systems trading as any trading style that involves creating computer programs to generate completely automated trading signals. If you are taking trading signals based on visual cues off a chart, then that is discretionary trading.

This is important because the software you buy must have the capability to test accordingly. If you are a systems trader, the back testing software must give you the ability to write programs and test the system without human intervention. Many times these software packages have their own proprietary programming languages that are easy to learn and implement. Just be sure that the programming language is powerful enough to do what you need it to do.

If you are more of a discretionary trader like me, you need to have the ability to step through price action candle by candle and place trades manually. This will allow you to see price action unfold just as if you were sitting at your computer and trading live. It is helpful to be able to place and erase trades just by stepping forwards and backwards through the charts.

Tip Two

Make sure that the indicators you use in your trading technique are in the software or can be easily added. There is nothing more disappointing than buying a piece of back testing software only to find out that you can't do a proper test because one of your key indicators is missing. The software you use should have a wide range of frequently used technical indicators. For the more popular software packages, you can usually get indicators online for free by visiting various forex blogs and forums.

Tip Three

It is very helpful if the software gives you the ability to save your testing results for later examination. This allows you to go back and review your trades to find out how you can improve your trading results. Some software packages allow you to export your data to a spreadsheet for more detailed analysis.

Tip Four

Be sure that you get historical data that is compatible with your software. There are different data formats and certain software packages can only use certain data formats. Check to see that the data you are planning to buy is compatible with the software package you are looking at. Many times you can download a free trial version of the software to test the compatibility of the data.

You can buy data from a variety of providers but there are also several great free sources of historical data out there so I would suggest that you try them first. It all depends on your budget. If you subscribe to an online software service, they are usually more expensive but they include historical data for your back testing. If you go with a cheaper software solution, you usually have to use your own data.

Tip Five

Find out if they have a support phone number or email you can use to contact them in case you have questions or issues with the software. Test them out before you purchase the software to see what kind of service you will be getting. The software I bought has great email support.

Conclusion

So there they are; the top five tips for choosing the best back testing software for the foreign exchange market. If you want to see what I use to back test, visit my blog and see some of my testing results. Otherwise there is a plethora of great information on the internet. Visit forums and other forex trading websites to see what people are saying about the different solutions that are available. Good luck and happy trading!