ForexBees

Forex expert advisors or forex robots are mechanical trading systems that buy or sell currency pairs automatically when some conditions are fulfilled. But not all the expert advisors can make profit. Some expert advisors may result in losses also. So you have to look for many different things before you buy an expert advisor. If you want to know all those things you can read my article at “http://www.forexbees.com/things-to-watch-before-you-buy-an-expert-advisr/“.

As I mentioned in that article one of the important thing you have to look for is backtested reports. This article is mainly about the things you have to look for with in the back tested results, if the author of the expert advisor is providing any. You can also use these if you are back testing an expert advisor. If you want to know how to backtest an expert advisor you can read my article at “http://www.forexbees.com/how-to-backtest-an-expert-advisor-in-metatrader/“.

So if the author of the expert advisor provides backtested reports or if you tested an expert advisor you will see the following kind of report after the backtesting is completed.

Example Backtested Report

In the above picture there are many things that you see but the following are the things I would like to explain you as I consider them important.

1) Currency pair – If the author of the expert advisor does not provide any information about the currency pair for which the expert advisor works, you can look for this field. I have seen many expert advisor’s websites and some of them don’t provide any information about the currency pair for which it works. So I generally look for the backtested results and then I look at the currency pair text in that, to check for which pair it works.

2) Period: The same thing as above. If you don’t know for which time frame it works you can look for this. You can also check this to know about the length of time period it was tested.

3) Model: This is an important one you have to watch out. There are three models available when backtesting an expert advisor. They are

• Every Tick
• Control Points and
• Open Prices only

In all of the above “Every Tick” model is the precise method as it uses every tick when testing the expert advisor. So if the model is showing “Every Tick” then it is a good one. If it is showing anything other than “Every Tick” model then the results are not believable.

4) Modelling Quality: Modelling Quality is another important factor. Modeling quality is the number of ticks modeled during testing. It is in percent value. Lets say it is 50%. That means only half of the ticks are used by the expert advisor when testing it. When I look in the reports I look for the modeling quality to be at least 90%. If it is not 90%, I think that it is not tested properly and I won’t believe in the results.

5) Initial Deposit and Total Net Profit: Some expert advisor authors may say that the expert advisor has made one hundred thousand dollars in 30 days which sounds like it’s a cool expert advisor. But when I see such things the question that immediately comes into my mind is “what is the initial deposit they used?”. It might be a million dollars and a normal man like me can not fund my forex account with a million dollars. So I look for these two things “Initial Deposit” and “Total Net Profit”. If the initial deposit can be affordable by me and there is a good total net profit that means its a good one.

6) Profit Factor: This is another important one you have to look. It is the ratio between Gross Profit and Gross Loss. It is in percent value. Lets say it is 1. That means there is an equal amount of gross profit and gross loss which means there is no profit for you. When I look for this, I look for a minimum value of 2. If it is 2 that means the profit is double than the loss. If it is greater than 2 that means it is a good expert advisor.

7) Maximal Drawdown: We can say it is maximum loss incurred in backtesting. For example if the initial deposit is $5000 and the account grows to $30000. Then a loss of $5000 occurred and the amount comes down to $25000 and it went to $35000 again. If it is the maximal loss in the whole length of back testing then it is the maximal drawdown. At any point if the maximal drawdown is not below the initial deposit and if the graph is continuously raising then it is good.

Maximal Consecutive Losses: These are the consecutive losses that occurred. The expert advisor is good if it is a small number.