How to backtest a simple MA strategy?

[Jokkus]

Hi,

Is there a simple FX moving average based strategy that i could stick to that has proven efficient?
I'm looking for that kind of strategy: 1/2 hour candlestick chart, MA20 crosses MA5, wait 3 candlestick, if still crossed, enter trade, stop loss: 100 pips take profit: 10 pips.... But I'm no IT genius and have no clue how to backtest!!!

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[Steve Pickering]

Hi

Moving averages are a decent and simple method of profiting from a reversal in trend, but as the market at best with a 30 minute timeframe is IMHO, practically random, I think you should be looking at least a one hour time frame.

I think this strategy works best on the majors, especially EUR/USD because of less risk of 'spiking' i.e. there is more depth than other currency pairs.

As for your "100 points profit and 10 point stop loss" strategy, I think it is fatally flawed. That is a Risk Reward Ratio of 10:1 and even of the signal methodology works, you not have many trades that will make 100 points without being down 10 at any stage. You should be looking at a RRR of 2.5:1 and setting a realistic stop relative to what sort of movement you can expect within, say, 24 hours. That means you will be looking at say, 30 pips S/L to 75 pips limit. But it all depends on the currency pair.

I don't think back testing is going to help you much; Experiment by trading with mini-lots, but (and this is vitally important!): Do exactly the same thing for each and every trade and don't get phased if you have 7 or 8 losing trades in a row. The law of probability will mean that this can happen! On the other hand, don't 'bet the shop' or think that you can walk on water if you get 4 or 5 winning trades in a row

Regards

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