11/12★ Occasionally I borrow the power of ChatGPT; Its 182【How to read backtest data (Practical edition)】
FX Auto Trading, the EA developer Reiwa’s double-e.
This series has been written with the aim of posting almost every day since last year.
We’ve probably continued for almost two years now!
If you read what has been written so far,
I am confident you’ll come closer to better EA operation.
And since I’d like to take a short break,
I plan to continue posting by leveraging the power of ChatGPT.
Periodically, I will post like in the past posts.
How to Read Backtest Data (Practical)
When choosing an EA, the most important thing is to determine whether it can perform across any market environment in the past.
To that end, two points especially worth noting are below.
■ Is it upward trending from before the Lehman Brothers era to the most recent period?
In backtests, you often see cases where it has risen only in the most recent 1–2 years.
At first glance it seems attractive, but this is very dangerous.
Logic that focuses too much on the latest market conditions may profit for a short time but will fail the moment the environment changes—it's a double-edged sword.
Especially if a volatile movement like during the Lehman shock returns, there is a risk of large losses.
In fact, during the March 2020 Corona crisis, the VIX index reached Lehman-shock-like levels.
Therefore, it is important to choose an EA that remains profitable in long-term backtests that include the Lehman period (around 2006 to the recent period).
■ Is the Recovery Factor at least 10 times higher over 10 years?
Even if net profit in a backtest is large, if the maximum drawdown (largest loss of capital) is also large, risk management becomes difficult and you cannot increase contract size.
So the Recovery Factor (net profit ÷ maximum drawdown) is what matters.
The higher this value, the more efficiently you can accumulate profits with lower risk.
A good benchmark for excellent EAs is a ratio of 10 years and 10 times or more.
That is, an EA that has produced net profit at least 10 times the maximum drawdown over 10 years has shown stable profit accumulation.
As additional reassurance, check whether profits appear evenly every year.
You can find tools for this via a quick web search.
Summary
Has it shown upward trend from before the Lehman era to the latest period?
Is the Recovery Factor 10 years and 10 times or more?
EA that satisfies these two conditions is likely to endure long-term operation.
Don’t be swayed by short-term performance; choose based on whether it can withstand long-term market conditions.
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【From Starting EA to Intermediate Level: Flow Summary】
First, it is important to master “installing the EA.”
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MT4 EA (Expert Advisor) and Indicator Installation Procedures
https://www.gogojungle.co.jp/post/1/8212
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※GoGoJungle Video Version※
Even at first, you may not understand everything at once, and some people will stumble.
I also stumbled many times at first, so don’t rush—you’ll be fine!
If you have questions, there is a contact form you can use!
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■ GoGoJungle “Contact Form”
https://www.gogojungle.co.jp/inquiry
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【How to Choose an EA】
Now that you’re ready to operate an EA,
you might be thinking, “I don’t know which EA will win... I don’t want to lose….”
Therefore, Reiwa’s Double-i wants to
“be able to determine the pros and cons through backtests”
and has published the following articles.
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■ How to find winning EAs from backtesting
https://www.gogojungle.co.jp/finance/navi/series/1714
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backtesting supports them.
Typically, the backtest period is longer than the forward period, and
whether you win in forward testing is partly determined by the backtest evaluation methods, which you can master to some extent.
【How should we manage EA risk!?】
And no matter how excellent an EA seems,
FX collapses if risk management is neglected.
So with EAs how should risk management be done?
The following article answers this.
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■ “How to Calculate EA Risk Management”
https://www.gogojungle.co.jp/finance/navi/articles/64703
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【EA Operation Mindset is Important】
And, to sustain EA operation for the long term, the “EA operation mindset” is also important.
Articles on these topics are,
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12/30 Year-End and New Year SP!! Full EA Course Part 3
https://www.gogojungle.co.jp/finance/navi/articles/80551
8/12 [Obon Holiday Special]! Now you too can master EA! “EA Operation Improvement Mindset”
https://www.gogojungle.co.jp/finance/navi/articles/72829
8/17 [Obon Holiday Special]! Now you too can master EA! “Notes during EA operation”
https://www.gogojungle.co.jp/finance/navi/articles/73797
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That said,
the content is quite substantial and important,
so even if you don’t understand it right away, please make sure to read it!
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【Reiwa’s Double-i-EA Listing】
https://www.gogojungle.co.jp/users/112481/products
Specifically, categorizing Reiwa’s Double-i-EA by genre
https://www.gogojungle.co.jp/finance/navi/articles/67162
(Genre diversification is essential when building a portfolio)
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【Reiwa’s Double-i Series Articles】
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
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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
https://www.gogojungle.co.jp/finance/navi/articles/65010
https://www.gogojungle.co.jp/finance/navi/series/610
【Reiwa’s Double-i’s Belief】
Develop EAs with proper methods,
seek the support of as many people as possible,
maintain a long-lasting WIN-WIN relationship,
and aim to revitalize the FX EA market and raise literacy.
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