So, you have been offered a new trading strategy that is guaranteed to make profit consistently?

Or, have you just dreamt up a new trading system that will shake the world of trading?


You have a few options now:

  • Test your strategy on live charts (can be a demo account)
  • Manually (think pen and paper and lots of scrolling back) test your strategy
  • Test your strategy using a simulator or a backtesting tool

Only you can determine how profitable the strategy is and we can tell you one thing for sure, all of these options will cost you money! Yes, we just said it and be in no doubt, it will cost you money no matter how you do it! Let’s take a look at the options individually to find out why.

We will use a made up strategy, that corresponds to the London Stock Exchange opening hours and so will take 8.5 hours to execute with the possibility of multiple orders placed in the session.

We also need to establish the value of our time. To keep things simple we will set this value at $10 an hour.

Live Testing

You will need at least a demo account (this is free) and lots of time to watch the market drag it’s feet and move very, very slowly (we’ve all been there)!

Given that you are using a live chart you will need 8.5 hours to see your results. 8.5 hours. It is a long time and using our theoretical cost of $10 an hour, the cost of such a test would be $85.

Manual Testing

Well, this is the old-school, but still preferred method of some traders. You need a clever spreadsheet where you log all the key details like lot size, entry price, exit price, take profit and stop loss. This is free, just use Google Sheets or a free alternative to Microsoft Office like Libre Office. Of course if you already own MS Office you are good to go.

You also need a chart where you can scroll back and then slowly start scrolling forward. The most popular trading platforms like MetaTrader, cTrader, Tradingview and NinjaTrader will allow you to do this.

Let’s be generous and accept that we can complete this exercise in 1 hour, giving us a total cost of $10.

Be warned though, with this method you have to be extremely self-disciplined to make it work. Being able to see where the price is going may stop you from tracking trades that would normally be triggered by your strategy. This is human psychology and only a very few of us can do this.

Using a Simulator

Welcome to the new world! A simulator works just like a live chart!

Most trading simulators (including MT4 Ninja) will let you select a starting point in time and will replay the chart for your selected instrument (be it forex, stocks or commodities) exactly the same way as it happened in live. Sounds great so far!

The key benefit however is the ability to speed up or slow down time whenever you want to! The implementation of this feature varies from simulator to simulator but it is available in the better ones and yes, you guessed it correctly in MT4 Ninja too.

There is also no manual tracking in a spreadsheet (or worse in a notepad) required, simulators will let you open and close orders just like you would do in live and at the end of the session you receive a detailed report of your results.

Let’s assume the we speed up time by the factor of 30, meaning we can complete the backtest for 1 hour in 2 minutes, and for 8.5 hours in 17 minutes. The total cost? $2.83.

But I also have to buy the simulator what about the cost of that, we hear you ask. True, that is not something you can just ignore so let’s make another assumption and say that the simulator costs $100 and we use it a 100 times. This will give us a cost of $1 per use.

Add that to our cost of time and we get a total cost of $3.83 for the test.

Conclusion

No matter what method you use, testing your strategy will cost money.

We have made some assumptions to lay out the above costs, but one thing should be clear by now, using a simulator is the most cost efficient, realistic and accurate method of testing trading strategies.

How much you value your time greatly affects your costs, and the more your time is worth to you the more benefit you get out of using a simulator. Here is a quick comparison to show how the cost changes depending on how you value your time:

Time Value ($/hour) $2.5 $5 $10 $15 $20 $25
Live Testing $21.25 $42.5 $85 $127.5 $170 $212.5
Manual Testin $2.5 $5 $10 $15 $20 $25
Simulator Testing $0.71 $2.42 $3.83 $5.25 $6.67 $8.08

Here it is on a chart too, we thought you’d like to have it visualised:

Testing Cost Comparison

And this is not about the cost only, a trading simulator will not only help with testing and refining your strategies. You will also gain confidence in your skills as a trader and will get to know the trading platform of your choice inside and out.

We hope this article answers some of your questions and you are on your way to find the perfect trading simulator for your needs!