If you're diving into the world of trading with MetaTrader 4, you might come across some experts that seem to shine in backtests. But hold your horses! There’s a catch, and it's rooted in how backtesting works.
The Backtest Dilemma
When you see a strategy that appears to be highly profitable, it’s often because the orders are filled and exited within the same bar. This can lead to misleading results, especially if you're working with longer timeframes. It’s a common pitfall that can turn your promising strategy into a real headache.
Why Are Backtest Results Unreliable?
- Price Action Mystery: If an order is filled and exited on the same bar, we can’t accurately gauge the price action within that bar. Backtests make educated guesses about what happened, which can lead to fills at prices that would be impossible in live trading.
- Market Movement: In a fast-moving market, these estimates can be way off. Sometimes, strategies might exploit these gaps to show off results that just won't hold up in the real world.
As a result, you might end up with an Expert Advisor (EA) that looks fantastic on paper but loses money when put to the test in live trading. Trust me, I’ve seen it happen more times than I can count. If you want to see this in action, try running it on the EUR/USD 1-hour timeframe.
Making Backtests Reliable
The key to trustworthy backtests is to ensure your entries happen at the open and exits at the close of the bar. This way, you can be confident that the order sequence reflects the actual price action. Plus, this method helps prevent the EA from accidentally entering and exiting an order on the same bar, which can lead to erroneous results.
So, if you’re thinking about using this expert in real trading, I’d advise against it. Better to stick with tried-and-true methods that give you a clear picture of performance.
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