Automation is key in any industry, it maximizes efficiency and most often improves the quality of the output. The same holds for trading and in this blog, you'll read about how algorithmic trading is superior to manual trading.
A golden rule for traders is to backtest a strategy before trading it on the live market. Backtesting involves applying a strategy to historical data. Why do so? The backtest serves as an indication of whether the strategy is worthwhile to trade or not.
The truth is, 8 out of 10 tested strategies are no good and go straight in the bin. Proper backtesting means collecting a sufficient sample size. This usually means testing the strategy over a couple of years of historical data- depending on the timeframe you trade on.
Now imagine the following. You have an idea that you heard about from a friend, a podcast, or some blog. The idea seems promising and you want to start applying it to the markets right away. The daunting reality is a time-consuming and also easily subjective influenced backtesting process. While you twist and tweak your strategy rules a little bit every time, the hours fly by and you lose track of what you are doing.
Manual backtesting can be quite a time-consuming job, especially when you compare it to automated testing. Backtesting with the help of software such as Metatrader 5 elevates your whole trading game. You can process more data, test many more strategies and push your investment portfolio to its limits.
In an automated environment such as Metatrader, you can easily tweak your input parameters (you’re strategy rules) in a less time-consuming way. It also allows you to test multiple currency pairs at the same time.
Right now, I am backtesting 29 currency pairs for one specific trading approach. Within 4 hours I will know if the strategy is worthwhile to pursue or not. During the 4 hours, I don’t even need to be on my laptop and e.g., can go for a run.
Meanwhile, the manual guy just finished backtesting one currency pair and got 28 more to go…
Trading is not only having an edge within the financial markets but also toward other stakeholders within the trading world. Pursuing a software-based backtesting approach sets you apart from the majority of retail traders.
P.S. You can check out the Profectus introductory course below for your introduction to building automated trading systems yourself!
Speak to you soon!