How to backtest your new binary options signal service
You must first decide whether you want to trade in the direction of the trend Trend Riding Strategy , trade against the trend Reversal Strategy or trade based on the repulsion of the support and resistance Repulsion Strategy. For me, all my strategies are based on the repulsion of important support and resistance levels. If you take a look the trading chart, you will find that the price is moving in the form of waves and the formation of the waves are based on the repulsion of major support and resistance level.
In case some of you do not know what is support and resistance, let me tell you a bit about it. In fact, if you take a close look at the 2 pictures above, you will realize that they are about the same line. This is because the past support will turned into new resistance. Personally I will suggest that you create a general strategy based on the repulsion of important support and resistance level as there are more trading opportunity available for such a strategy. Now that you have decided on the strategy to use, you should now decide on the binary option indicators to use.
It is almost impossible to trade without the help of indicators and if you decide on using the repulsion strategy, there are a few indicators that you must used as these are indicators that provides very strong level of support and resistance. In fact, I have written a post before on these indicators and you can read them from the link below. Of course, there are still a lot of indicators available and you can still choose those you personally prefer.
What I have written is just a guide for you. However I do not suggest that you use more than 3 indicators in a strategy as it will be very complicated and you will find that you do not have much trading opportunity.
Now that you have the indicators at place, you will need to decide which is the entry signal you want to take. The above is just an example to show you what could constitute an entry signal. Therefore you need to decide on an entry based on the indicators you are using.
Once you have your indicators in place, you will need to test out the performance of your strategy. First of all, you will have to move back to at least 2 months from the present date and do a paper trade. As you scroll the chart, you will record down the outcome of each individual trade entry based on your decided entry signal.
For example, your strategy wins 30 times and loses 20 times. You should do the calculation for 2 months and you will only accept the strategy if it is profitable for both months. The key here is you must have a strategy that wins every month. The amount of profits depend on your own preference. Personally, I find it too little but everyone has their own appetite for money. If you are satisfied with the earnings, then you can go ahead to trade with the strategy you have formulated.
If you are not satisfied with the earnings, you can then test with various indicators or adjust your entry or adjust the settings of your indicators. This is what I called fine tuning of a strategy. In fact, the most tedious part of formulating your own strategy is here.
You will have to spend a lot of time testing with different combination of indicators, testing various different entry time and testing by adjusting the settings of your indicators. Once you have made an adjustment, you should go back to step 4 to test your strategy for another 2 months to see if your strategy can make profits that is up to your expectation.
The whole process can easily be around 3 to 6 months and for me, it took me 6 months to formulate a total of 3 strategies that can allow to trade in any market condition. The reason why I decided to formulate my own strategy is because I had bought quite a number of lousy courses and joined several signal services that do not work at all. These are the works of marketers and it really frustrate me.
Initially I just formulated one strategy and I find that there are limited trades every month and slowly I formulated another 2 strategies to give me optimum amount of trades everyday.
The whole process can be tedious but it is definitely worthwhile once you manage to formulate one profitable strategy. The feeling is indescribable as you know that you have a way to make consistent income from then on. It has been 3 years from to and I am still enjoying the fruits of formulating my own strategies.
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