Testing of the Trading Strategies of Binary Options
How to trade binary options. Let's test strategies
Forums and various sites on the Internet are full of old and only emerged trading strategies for binary options. At the same time, often in the description of the strategy and its potential the traders usually promise immense profits, and in a real picture of trade it turns out completely different. In this case, the trader loses some part of his deposit.
How to determine whether it is possible to make money on trading strategy for binary options or everything described on the websites is just rubbish which the Internet is full of? The technology of testing trading strategies can help you answer this question. In this case, the trader knows exactly whether or not to start trading or put the newly appeared "miracle" into the garbage after the test of the strategy without the loss of time and money on the trade.
How to trade binary options? Begin to trade with the testing!
For the test strategy you can take advantage of any trading terminal, which you use in following the history of quotations. We propose to use MT4 in the tests which can be downloaded here.
Especially because in this terminal a special software tool called "Strategy Tester" is present. With its help it is possible to recreate the real-time quotes of past days.
Thus, when you have found a new trading strategy that you are going to use in your own trading, test it to determine whether the system is worth your attention.
Choose a timeframe for testing
It is not necessary that your trading strategy has been designed for use on the MT4 trading terminal. After all, in trade we have to deal with the quotations of financial assets which are the same in all terminals for trading. That is, the web terminals and the terminals that are installed, such as MT4, contain the same quotes. However, the advantage of the platform Meta Trader 4 is that with the help of this software we can look into the past, reveal the real quotes that were a day, week, month or even a year ago for our chosen asset.
So, you have a new strategy for trade and you do not know whether it is worth your attention. In order to determine its profitability, open MT4 and select an asset that you want to use for trading. For example, the currency pair GBPUSD.
Then, select the time interval for displaying quotations. In a typical web terminal the broker provides a line graph that corresponds to the timeframe of M15 in the terminal MT4. However, for the convenience of the graphs, we must choose the M5 timeframe.
Then, scroll the wheel of the computer mouse, we can move on chart of the asset's quotations venturing almost any time ago.
How to test a trading strategy
For example, you have found on the Internet a trading strategy which includes a number of technical indicators. The site where this strategy is located should describe the rules for entering the trades. The strategy, which we took as an example, is simple. Entrance to the transaction is the simultaneous intersection of signal lines in the direction of indicators of entering the trade, and the intersection with a candle of the price movement on the chart.
At the same time, if we sell classic binary options, we know that the expiry term of the option is usually 15 minutes. In the terminal MT4 we have chosen the timeframe of the quotations M5. That is, if we made a deal at the opening of a five-minute candle, the period of expiration comes at the close of the third candle on the account.
Thus, we see that the deal we would made in a web terminal on purchase (Call-option) would bring a profit. That is, we can take any period of history and the present algorithm to test the work of our trading strategy to get clear results on the profits and losses.
How to trade binary options. The technology of strategy testing
Due to the heterogeneity of the price quotations movement, there is a frequent change of trends from flat to trend and vice versa -so as to test trading strategies on history, we need to take an interval of at least 3 months. Thus, we obtain the averaged data on profit and loss, taking into account the change in the movement of quotations in different trends (a flat and trend).
If within 3 months of virtual trade in quotes' history your trading system gives a positive result, you need to test this strategy in the same way on the interval of 6 months, which will give more accurate data on the profitability of your strategy.
At the same time, in the course of testing the strategy you can see that the recommended trade rules of entry the sale are not suitable for this strategy, you can determine completely different conditions for such trading.
Moreover, thanks to the testing strategy on history, you can configure the trade-in for other types of binary options, such as options «Range» or «One-Touch». That is, let's consider the options of trading with the pre-defined quotations of the chart with strike levels.
Strategy Tester. How to use this software enhancement
MT4 trading terminal contains a strategy tester that is able to play on-line the price movement with a predetermined speed playback for a certain period of time in the past. What does this give us? We can re-create a real picture of the price movement in that part of the history, the results of which we already know in advance. At the same time using the graphical tools of the terminal, we in the mode of trading will be able to make notes directly on the chart, where you need to buy or sell according to the trading terms, where the time of expiration of the contract comes and where you would get a profit or loss. At the same time, you can use the strategy tester on any of the selected intervals and financial assets.