Try not to cheat
The most important skill in back testing is learning not to peek. You might be generally aware of long-term trends of a forex pair, but nobody knows the hour to hour movements by heart, and this is what you’ll be back testing for.
Don’t be tempted to see if you’d have identified a known rally – hindsight should play no part in your testing.
Pick a date and scroll the chart to the right so you can’t see what happened after that date. You can then zoom in and look at the chart in detail.
You’ll start to see the familiar ups and downs of your pair and you’ll begin to notice medium-term trajectories on which you can start to base entry and exit points.
Based on the information in front of you, you can now put your strategy to the test.
Set your entry trigger and stop loss, and decide on an amount of money you’d stake on that trade and how long you’d invest for.
You should be able to draw the lines on the chart to see if your triggers are reached.
Now, start scrolling to the left. You’ll start to see your hypothetical trade reveal itself. Did you meet your entry trigger? If so, what happened to your trade over the period of time you’d have held a position?
Keep a record of that trade, then move on to another period of time and test your strategy again. Look for similar signals in the chart and act upon them as you would in the real world.