STEP-BY-STEP

BACKTESTING
BLUEPRINT
Analyzing the Past to
Optimize the Future

This Blueprint is going to be composed of 7 parts.

Part 1 - Framework for Strategy Testing and

Development
Gives a big-picture view of what building and backtesting a
whole strategy should look like.

Part 2 - Manual Backtesting vs. Automated

Backtesting
We discuss the pros and cons of each as well as why manual
backtesting is superior.

Part 3 - How to Backtest Indicators & Patterns

The step-by-step framework used to backtest any indicator
or pattern on any market or timeframe.

Part 4 - How to Backtest Supporting Indicators

& Rules
The step-by-step framework used to add and optimize
supporting indicators.

Part 5 - How to Backtest Full strategies

The step-by-step framework used to backtest entire
strategies. These could be strategies found online or
strategies developed through our frameworks.

Part 6 - Key Risk Management Methods

4 Risk management strategies for different situations.

Part 7 - How to Find Worthy Strategies on

Youtube
Simple framework for finding good strategies in an endless
stack of garbage.

The goal is to give you all the frameworks necessary

for finding, building, and optimizing a strategy from
start to finish without guesswork.

Learn more at [Link]

 FRAMEWORK FOR
STRATEGY TESTING AND
DEVELOPMENT
Here's a big-picture view of what building
and backtesting a strategy should look like.

CHOOSE A CHOOSE A
MARKET TIMEFRAME

Are you going to be trading

What timeframe are you going
Stocks, Forex, Futures,
to use? 30min, 5min, 1H, 1D,
Crypto, Commodities, etc.
etc. Different timeframes
This matters because each
require different backtesting
market requires slight
approaches.
changes in approach.

CHOOSE 3 - 5 ENTRY
INDICATORS OR PATTERNS

Your goal is to find indicators or patterns that give you

signals to enter into trades. This could be things such as the
SSL channel, Aroon, Break and Retest Patterns, etc. The goal
is to choose 3 - 5, that way you can analytically test and
compare them against each other.

PERFORM KEY BACKTESTS

Now you'll want to backtest each indicator or pattern using

the same risk management parameters, timeframe, market,
and time period. The specific method for these depends on
the timeframe and market. We'll dive further deep into those
in the next sections.

CHOOSE A WINNING PRIMARY

CONFIRMATION INDICATOR OR PATTERN

After analyzing and comparing the data there should be a

clear statistical winner. You should move forward with this
one.

ADD 1- 4 SUPPORTING BACKTEST ENTIRE

INDICATORS SYSTEM

Now you'll want to add Time to backtest the

supporting indicators or entire system from start
rules. They should help to finish. This includes
increase your winrate and primary and supporting
returns. (Specifics in next functions.
parts)

DEMO TRADE TRADE LIVE

If you've gotten to this step Now, at your own discretion

the only thing left is to make and if you feel comfortable.
sure it works properly on a There is the option to go live.
Demo account.

Learn more at [Link]

 Learn more at [Link]

TOP 1%
Trading is about data and
probabilities. If you have the
data you can make informed
decisions. Without it, you're
trading blind. If you really want
to be in the top 1% of traders
you need to have a good
understanding of your strategy.
Here's how!

OUR SOFTWARE ALLOWS ALL

TRADERS TO ANALYSE THEIR DATA
Whether you're using a mechanical strategy, price action,
backtesting, or trading live... We have tools to help you!

Next we'll take a look at what

these tools are, how to use
them effectively to improve
your overall trading and results.

THE BACKTESTER
Our backtester allows you to quickly record all your trades as
you backtest.

You can keep track of every single percentage and dollar

amount won or lost.

Typically a user will backtest historical data for their trading

strategy and then write down the results of every single
trade in a spreadsheet.

This is not very efficient. In fact, TraderEdge is 3X faster.

Meaning you can get 3X as much backtesting done. Click here

to see an example of our backtester in use.
 Learn more at [Link]

THE STRATEGY LIBRARY

The strategy library is a cool feature that
makes saving your backtesting data super
easy.

After you're done backtesting, all you gotta

do is click "save" and it'll go right into the
strategy library.

Then you can organize it however you want

by sorting it into different categories and
coloring it with different colors.

You can sort it by stuff like different

indicators, full strategies, or different time
periods.

And if you want to keep testing, you can

just add it right back into the backtester.
Plus, you can compare multiple backtests at
once to see how they stack up against each
other!

THE PROFIT CALENDAR

Our profit and loss calendar is a super useful tool for active traders.
It helps you keep track of how much money you made or lost each
day, and it's easy to use!

You can also keep track of how you felt that day, how many trades
you did, and if you made any mistakes. This way, you can see what
you're doing well and what you need to improve.

The calendar even lets you write notes to help you remember what
happened on each day. And the best part is, it shows you how
you're doing each week and month, like how many times you won
and how much money you made. That way, you can keep getting
better and better!
THE FORWARD SIMULATOR
This tool is really helpful for figuring out how much money you
might make or lose from trading.

It works by simulating trades and using metrics like your

winrate and fees to figure out what would happen.

That way, you can get a good estimate of what your trading
account might look like.

DISCLAIMER
All information in this course is for educational purposes only and does not
give financial advice. Any information provided here is only the personal
opinion of the author (not advice or financial advice in any sense, and in the
sense of any act, ordinance, or law of any country) and must not be used
for financial activities.

While the author believes that the content provided is accurate, there are
no explicit or implied warranties of accuracy. The information provided is
believed to be reliable; the author does not guarantee the accuracy or
completeness of the information provided.

Forex trading is potentially high risk and may not be suitable for all
investors. The high level of leverage can work both for and against
merchants. Before each Forex investment, you should carefully consider
your goals, past experience, and risk level. The opinions and data contained
on this site should not be considered as suggestions or advice for the sale
or purchase of currency or other instruments. Past results do not show or
guarantee future results.

Learn more at [Link]

MANUAL BACKTESTING VS.
AUTOMATED BACKTESTING
The pros and cons of each and why
ultimately manual backtesting is superior.

Manual backtesting is actually better than automated

backtesting for a few reasons.

Firstly, automated backtesting takes up more time because you

have to keep debugging it. Plus, you need to become skilled at
coding before you can even start using it.

Another reason is that automated backtesting doesn't work for

every single indicator on TradingView. And since new ones are
added every day, it's impossible to keep up. Plus, it doesn't
work for all platforms, markets, or timeframes.

That's where manual backtesting comes in! You don't need any
coding skills, and it works for everything. You can backtest any
strategy, on any platform, and for any timeframe.

Overall this just makes it the obvious choice for most retail
traders.

HOW TO BACKTEST
INDICATORS OR PATTERNS
The step-by-step framework used to
backtest any indicator or pattern on any
market or timeframe.

Some important things to keep in mind when backtesting

indicators is that they'll behave differently on different
timeframes as well as with different settings.

Let's say you intend to use the MACD on the hourly chart on the
default settings. Well, your backtesting should reflect this. Your
backtests should be done on the Hourly chart using the same
settings. If you wish to take this indicator and now use it on the
daily chart you should perform the backtests again.

P.S- When testing out an indicator make sure to test it on 2-3

different settings and see which has the best results. The same
thing applies for patterns.

“Most traders take a good system and destroy

it by trying to make it into a perfect system.”

- Robert Prechter

Learn more at [Link]

STEP 1

After choosing an indicator/pattern to test. Determine the

timeframe and settings to get started on.

STEP 2

Decide on a risk management method. Refer to the later

section in this document for further insights. You must keep
the same risk management method throughout your backtests.

STEP 3

Next we will go over the backtesting frameworks depending on

market and timeframe.

Forex Low Timeframes ( <1D chart ):

If you plan on trading all the forex pairs on low timeframes

then we suggest going back 6 months on the following pairs.

EUR/USD
AUD/NZD
CHF/JPY
EUR/GBP
AUD/CAD

Forex High Timeframes ( ≥1D chart ):

We suggest going back 2 years on the following pairs.

EUR/USD
AUD/NZD
CHF/JPY
EUR/GBP
AUD/CAD

Regardless you should always have at least 100 different data

points (Trades) in your initial testing.

Stocks:

Same thing, if you're on higher timeframes, do a longer

backtest (2-3 years), on low timeframes 3 - 12 months.

Now for this, it really depends on what you're planning on

trading. If you plan on trading one specific individual stock,
then focus all your backtesting on that one stock. If you plan
on trading multiple blue chip large cap stocks, backtest 3
individual stocks and also the s&p 500. If you're trading penny
stocks (or any low-cap stocks) Id personally suggest trading at
least 5 different random low-cap stocks.
 Futures:

Same concepts, try and just get at least 100 data points.
Typically in futures you only trade 1 security, so for example, if
you're only trading the MNQ, try and get at least 100 trades in
your backtest.

Crypto:

Same as futures, you're typically trading only 1 currency so get

100 data points on that currency.

Commodities:

If you're trading Gold & Silver, try and get 50 Trades on gold,
and 50 Trades on silver.

ps. Here's a quick video example of backtesting

a Forex Indicator (the SSL) -> Video

HOW TO ADD
SUPPORTING
INDICATORS & RULES
The step-by-step framework used to add
and optimize supporting indicators or rules.

Supporting indicators & rules support your main entry

confirmation method and help reduce the number of bad
signals.

Essentially, good supporting indicators should increase

your winrate and your returns.

Ideally, you should have at least 1 supporting Indicator or

rule in your system, but you can have anywhere from 1-4.

Let's look at the step-by-step framework next.

ps. an example of a "rule" would be, let's say you trade

price action and trade a specific breakout pattern. A rule
could simply be to only take the first breakout until an
entirely new signal develops. Or to take a breakout long
only when it's above a certain EMA level (vice versa for
shorts).

“The game taught me the game. And it didn’t

spare me the rod while teaching.”

– Jesse Livermore

Learn more at [Link]

 STEP 1

Now, after backtesting multiple indicators or patterns. You

should have determined the one that has the highest winrate
and ROI. We'll move forward with this one.

STEP 2

Next, we want to add a single supporting indicator or rule

alongside our original entry confirmation indicator or pattern.

Perform the same backtests again but now both signals have
to align in order for the entry to be taken.

The result should be an increase in winrate and ultimately an

increase in ROI.

If this isn't achieved, then try different settings or an entirely

different indicator.

Basically, you'll want to test and combine supporting indicators

or rules until you achieve a desirable winrate and ROI.

*be careful not to overdo it. the goal shouldn't be to aim for a
99% winrate and insane ROI. If you manage to take your
original indicator from a 53% winrate and 64% yearly Return to
a 66% winrate and 97% yearly return, you've done an amazing
job.

ps. Here's a video example of this --> Video

HOW TO BACKTEST FULL

STRATEGIES
The step-by-step framework used to
backtest entire strategies. These could
be strategies found online or strategies
developed through our frameworks.

This process is actually the same as backtesting individual

indicators or patterns. Basically, take the entire system and
backtes it over the same markets and timeframes as
previously.

For example if you built a fully mechanical trading system

with indicators for the Forex Daily chart. that means you
backtest the 5 pairs, (eur/usd, aud/nzd, etc) on the daily
chart and went at least 2 years back on each pair. Now,
take the entire system and go over those same pairs,
timeframe, and time period. Your results should be
drastically better!

If you feel comfortable, move forward to a demo account!

KEY RISK MANAGEMENT
METHODS
4 Risk management strategies for
different situations.

Right off the bat, you'll notice that 3 of 4 these methods use
the ATR. The indicator measures volatility within the market.
This is important because when volatility is low you want
tighter stops and TP levels, and when volatility is high, you
want wider levels.

Method #1 - NNFX ATR:

Your stoploss should be 1.5X the ATR value (at point of
entry) and your trade should be split into two equal trades.
One with a TP of 1X ATR and the second with no TP. Rather
you will exit on an opposite signal from your strategy. Each
half of the trade has a SL of 1.5X ATR. If TP1 (1X ATR) is hit,
Move the SL to BreakEven on the second half.

Here's an Example...

Method #2 - Fixed ATR Multiplier:

You can exit using fixed ATR values, for instance, 1.25X SL
and 2.5X TP. This would give a 2:1 Reward to Risk Ratio.

The actual values you use don't really matter, just be sure to
test and compare them.

Here's an Example...
Method #3 - Fixed Value:
Now we're quickly going to zoom out and find an approximate
average point on the ATR. Basically you're going to do the
same thing as method 2 except now you don't have to figure
out the ATR value for every single trade since you have an
average. This is really great for scalping.

Be sure to check those values every couple dozen trades or

so.

Here's an Example...

Method #4 - Inverse Exit:

This one is super simple. I always suggest placing at least an
emergency stoploss somewhere, either below a swing low or
using a fixed tick/pip count. In any case, you exit the trade
once you get an opposite signal, so this is often well before
the emergency stoploss.

Here's an Example...

"Limit your size in any position so that fear

does not become the prevailing instinct
guiding your judgment."

– Joe Vidich

Learn more at [Link]



Here's an infographic framework I developed

for finding good strategies on Youtube.