The current era of the AI revolution has taken the internet by storm. The financial industry is no different. Many expert advisors in the marketplace claim to offer millions of dollars yet fail to deliver on the promise.
The MetaTrader 4 was first released in 2005 and has gone through multiple updates to cater to the needs of the mass trader. The MQL 5 marketplace is a standard hub for traders looking to buy/sell their expert advisors that work on the MT4 platform. Before purchasing any system, traders should thoroughly backtest them on the strategy tester in MT4.
Running these systems through complex testing can give you an insight into their efficiency. However, you need ample knowledge in reading these results.
Where is the strategy tester located?
Access the strategy tester in MT 4 using the following steps:
- Open the platform and click on the view button in the top menu
- Select the strategy tester from the dropdown
Alternatively, you can also use the hotkeys Ctrl+R to open up the strategy tester.
Image 2. The red box in the image highlights the strategy tester option in the main menu.
How to backtest your expert advisor?
Backtesting is pretty simple in MT4. At first, you have to place the system within the experts’ directory of the MetaTrader platform. To access the location, head over to the main menu, click on ‘file’, and then ‘open the data folder’.
In the designated folder, click on MQL 4 and then on experts. Place your file here and refresh the experts tab in the MT4 platform. Your algorithm will appear alongside other EAs.
Here is a designated list of functionalities MT4 has:
- Timeframe. Open the strategy tester and find the algorithm within the drop-down menu. There are six different time frames to choose from, i.e., M1, M5, M15, M30, H1, H1, and Daily. You can also adjust the spread value to your liking.
- Historical data. MT4 allows traders to set the designated duration to test the system. Historical data should be made available for the selected period. MT4 will download it automatically; however, in case of an error, you can also download it manually from the history center.
- Visual mode. The visual tester within MT4 can allow you to witness trades in real time on the chart as they happen. Remember that visual testing can be prolonged compared to regular backtesting as the bars require onscreen playback.
- Tick model. The most accurate backtesting is available with every tick model. This is also the most time-consuming. Traders can choose to test crude points or open prices only, which is much faster. The results of these two should not be considered authentic.
- Modify expert. The modify expert option opens up the MQL 4 coding interface. Traders can then adjust the coding parameters of their expert advisor. The option is only available if you have the MQL 4 file within the experts’ folder.
- Optimizing expert advisors is recommended to get the best-set file. It removes the need to manually modify each parameter before testing. Optimization can be hard on your PC, so ensure you have enough RAM and CPU power before starting one.
- Expert properties. You can adjust several settings within the expert advisor, for example, lot size, indicator values, stop loss, take profit, etc.
Reading the MT4 Backtesting Report
Reading the MT 4 report can give you information on important metrics such as drawdown, profit factor, average profitable trade, etc. Let’s look into some points that should be noted:
- There are two drawdown values, absolute and maximal. The first represents the drawdown value from the initial deposit, while the latter points to the drawdown value during the mid-trading phase.
- To ensure a positive balance at the end of the trading period, gross profit must exceed gross loss.
- Your EA can be accurately evaluated by analyzing its profit factor and win ratio. These metrics provide valuable insights into the algorithm’s ability to generate profits and win trades, respectively, and help determine its overall success in the market.
- Make sure that the modeling quality for the test is above 90
- The trading results can highlight the strategy of the bot. Head to the results section and check all the opened and closed trades for accurate analysis.
- The backtesting graph shows the balance and equity curves. If the equity curve separates from the balance, it confirms that the bot is using risky grid and martingale strategies.
Summing up
Backtesting is essential for traders looking to buy or sell expert advisors in the MetaTrader 4 (MT4) platform. The MetaTrader 4 platform has several functionalities such as timeframe, historical data, visual mode, tick model, modification expert, optimization, and expert properties that you can use to test systems. Traders should read the MT4 backtesting report to gain insights on metrics such as drawdown, profit factor, win ratio, modeling quality, and trading results. The information helps determine expert advisors’ efficiency and success before using them in the market.