How to avoid a drawdown of the deposit on binary options
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For example, you could be operating on the H1 one hour timeframe, yet the start function would execute many thousands of times per timeframe. Backtesting Once I built my algorithmic trading system, I wanted to know: 1 if it was behaving appropriately, and 2 if the Forex trading strategy it used was any good.
In other words, you test your system using the past as a proxy for the present. MT4 comes with an acceptable tool for backtesting a Forex trading strategy nowadays, there are more professional tools that offer greater functionality.
To start, you setup your timeframes and run your program under a simulation; the tool will simulate each tick knowing that for each unit it should open at certain price, close at a certain price and, reach specified highs and lows. The indicators how to avoid a drawdown of the deposit on binary options he'd chosen, along with the decision logic, were not profitable.
As a sample, here are the results of running the program over the M15 window for operations: Note that our balance the blue line finishes below its starting point.
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One caveat: saying that a system is "profitable" or "unprofitable" isn't always genuine. This particular science is known as Parameter Optimization. I did some rough testing to try and infer the significance of the external parameters on the Return Ratio and came up with something like this: Or, cleaned up: You may think as I did that you should use the Parameter A. Specifically, note the unpredictability of Parameter A: for small error values, its return changes dramatically.
In other words, Parameter A is very likely to over-predict future results since any uncertainty, any shift at all will result in worse performance. But indeed, the future is uncertain!
And so the return of Parameter A is also uncertain. The best choice, in fact, is to rely on unpredictability. Often, a parameter with a lower maximum return but superior predictability less fluctuation will be preferable to a parameter with high return but poor predictability.
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In turn, you must acknowledge this unpredictability in your Forex predictions. Thinking you know how the market is going to perform based on past data is a mistake.
This does not necessarily mean we should use Parameter B, because even the lower returns of Parameter A performs better than Parameter B; this is just to show you that Optimizing Parameters can result in tests that overstate likely future results, and such thinking is not obvious. This is a subject that fascinates me. Building your own FX simulation system is an excellent option to learn more about Forex market trading, and the possibilities are endless.
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- Be it a spot forex or binary options trading, there is always a possibility for loss to appear in every position you place.
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The Forex world can be overwhelming at times, but I hope that this write-up has given you some points on how to start on your own Forex trading strategy. Read it once you have some experience trading and know some Forex strategies.