9/25★ Occasionally I borrow the power of ChatGPT 165 【How to read backtest data (Practical edition)】
FX Automated Trading, the EA developer Reiwa’s Double-I.
This series has been written with the goal of posting daily since last year.
I think I have continued for about a year and a half now!
If you read what I’ve written so far,
I’m confident you’ll move closer to better EA operation.
Also, I would like to take a short break,
so I will continue posting with the help of ChatGPT.
From time to time, I will post irregularly like before.
How to read backtest data (Practical edition)
When choosing an EA, the most important thing is to determine whether it can perform well in any historical market environment.
To that end, pay particular attention to the following two points.
■ Has it been rising steadily from before the Lehman era to the most recent period?
Backtests often show a rising trend only over the last 1–2 years.
At first glance this may seem attractive, but it is very dangerous.
A strategy that focuses too much on recent market conditions may profit for a short period but will fail when the environment changes—a double-edged sword.
In particular, if a volatile movement like during the Lehman crisis returns, there is a risk of large losses.
In fact, during the March 2020 COVID crisis the VIX index reached Lehman-crisis levels.
Therefore, it is important to choose an EA that remains profitable in long-term backtests that include the Lehman era (around 2006 to the most recent period).
■ Is the Recovery Factor above 10x over 10 years?
Even if net profit in backtests is large, if the maximum drawdown (largest drop in funds) is also large, risk management becomes difficult and you cannot increase lot sizes.
Thus, the key is the Recovery Factor (net profit ÷ maximum drawdown).
The larger this figure, the more efficiently profits can be accumulated with lower risk.
In particular, a good indicator for excellent EAs is a ratio of “10x over 10 years” or more.
In other words, an EA that has net profit ten times its maximum drawdown over ten years has consistently generated profits.
As an additional comfort, check whether profits are steady year after year.
Tools like Quant Analyzer or Iwa Raider can be used to check this.
✨Summary
Has it risen from before the Lehman era to the most recent period?
Is the Recovery Factor above 10x over 10 years?
EA that meet these two criteria have a high likelihood of withstanding long-term operation.
Don’t be swayed by short-term results; base your choice on whether they can perform in long-term market environments.
━━━━━━━━━━━━━━━━
【Flow from “Want to start with an EA!” to Intermediate】
First, it is important to master “how to install an EA.”
--------------------------------------------------------------------
MT4 EA (Expert Advisor) and Indicator installation procedure
https://www.gogojungle.co.jp/post/1/8212
--------------------------------------------------------------------
※GoGoJungle Video Version※
Even at the start, not everything can be understood at once, and some people will struggle for sure.
I also stumbled many times at first, so don’t rush—you’ll be fine!
If you have questions, use the “Contact Form”!
----------------------------------
■ GoGoJungle “Contact Form”
https://www.gogojungle.co.jp/inquiry
----------------------------------
【How to choose an EA】
Now that you think you can operate an EA,
you may think, “I don’t know which EA will win… I don’t want to lose…”.
So Reiwa no Daru-ii begins a series that helps you gauge quality through backtests,
with the following articles published.
--------------------------------
■ How to find winning EAs from backtests
https://www.gogojungle.co.jp/finance/navi/series/1714
----------------------------------
Forward testing is important, but backtesting underpins it.
Backtest periods are usually longer than forward periods, and
whether you happened to win in forward testing can be partly inferred by mastering backtest evaluation.
【How to manage EA risk!?】
And no matter how excellent an EA seems,
if you neglect risk management, FX will collapse.
Therefore, with EAs, how should risk be managed?!
The article answering this is below.
----------------------------------
■ “How to calculate EA risk management”
https://www.gogojungle.co.jp/finance/navi/articles/64703
----------------------------------
【EA operation mindset is also important】
And, to sustain EA operation long-term, the “EA operation mindset” is also important.
Regarding those articles,
----------------------------------
12/30Year-End and New Year SP!! EA Full Disclosure Course Part 3
https://www.gogojungle.co.jp/finance/navi/articles/80551
8/12 [Obon Holiday Special! ] Now you too can become an EA master! “EA operation mindset”
https://www.gogojungle.co.jp/finance/navi/articles/72829
8/17 [Obon Holiday Special!] Now you too can become an EA master! “Important cautions during EA operation”
https://www.gogojungle.co.jp/finance/navi/articles/73797
----------------------------------
With that said,
the content is quite substantial and very important,
so please make sure to review it even if you don’t understand it right away!
━━━━━━━━━━━━━━━━
【Reiwa no Daru-ii EA List of Offerings】
https://www.gogojungle.co.jp/users/112481/products
Specifically categorized Reiwa no Daru-ii EAs by Genre
https://www.gogojungle.co.jp/finance/navi/articles/67162
(Genre diversification is essential when building a portfolio)
━━━━━━━━━━━━━━━━
【Series articles of Reiwa no Daru-ii】
■ EA Beginner Course
https://www.gogojungle.co.jp/finance/navi/series/1700
--------------------------------
https://www.gogojungle.co.jp/finance/navi/articles/64703
https://www.gogojungle.co.jp/finance/navi/articles/65978
https://www.gogojungle.co.jp/finance/navi/articles/64738
https://www.gogojungle.co.jp/finance/navi/articles/65619
--------------------------------
■ How to find winning EAs from backtests
https://www.gogojungle.co.jp/finance/navi/series/1714
--------------------------------
https://www.gogojungle.co.jp/finance/navi/series/1701
https://www.gogojungle.co.jp/finance/navi/articles/64723
--------------------------------
■ Reiwa no Daru-ii: “Push-buying on dips, pullback selling logic” released!!
https://www.gogojungle.co.jp/finance/navi/articles/65010
■ Daru-ii FX Musings
https://www.gogojungle.co.jp/finance/navi/series/610
【Reiwa no Daru-ii’s Beliefs】
Develop EA by a sound method,
acquire the trust of more people,
and maintain a long-term WIN-WIN relationship,
aim to revitalize the EA market and raise literacy.
━━━━━━━━━━━━━━━━
