Having a trading system is essential for becoming a successful Forex trader. And the advice is always to have a plan, and stick to it. But sometimes sticking to your plan means you are leaving a lot of profit on the table. In this article I want to show the power of split testing your Forex trading systems.
Just imagine… you have a Forex plan that makes you 20% profit every month. Your trading plan is easy to follow and consistent… so you stick with it and make your 20% each month. But since you are not trying to make the trading system better by split testing, you’ll never make more than 20%. What if one small change increased your profit to 55% per month?
What Is Split Testing?
I always like to borrow methods from one industry (in this case marketing), and apply it to an unrelated industry (Forex trading). Marketers use split testing to test sales copy, ads and just about anything else related to the sales process. Basically, you set up a control by tracking the effectiveness. Then you make ONE small change and see how it compares to the control. If you makes an improvement… you keep the change and it becomes the control to be tested against another variation.
How Can You Split Test A Forex Trading System
The problem most Forex traders have is an effective way to split test their trading systems. As a matter of fact, once traders find a system that is profitable, they don’t want to change a thing for fear of losing money. So, once they find something that works, they stick with it.
Even testing different strategies on a DEMO account takes too long. But now there is Forex testing software that lets you use real, historical data to test large periods of time relatively quickly. This means you can set up a control by testing your trading strategy. Then you can test the SAME time period with the same trades using a slightly different version and compare results. This has the potential to expose a more profitable way of trading that means more money in your pocket.
What Are The Results Of Split Testing Forex Trading Systems
Recently I picked a popular Forex trading system and put it through its paces using the Forex testing software. Right out of the box it was 83% profitable for the entire year of 2008. Not bad right? Then I changed the trading method slightly and tested for the exact same time period. The results were amazing… 279% profit! But I wasn’t done yet. The third test for the same time period resulted in an amazing 789% profit for the same time period.
You don’t have to be a genius to realize what these improved profit percentages mean to your bottom line. This is an example of the huge benefit of split testing your Forex trading systems. You could be leaving a lot of profit on the table that can be scooped up with just some minor testing and tweaks to your system. Think about the possibilities.