Profit & Loss

Profit or loss, this is the question!

While backtesting with Metatrader, it is quite common to incur in the profit or loss problem. What am I talking about? When a trader tries his strategy, Metatrader runs some forecasts about prices. The more detailed the data you are using, the better the backest. If you are using 1m timeframe it is more precise than 5m or 1 hour data. MT4 acts as a bouncer between the lowest price and the highest one. Here it comes the problem out: how can you determine whether the stop loss you set has been hit before the take profit you even set? There is no answer to this problem. You could use some thick data, but they are too slow and Metatrader does not support them. The only possible way is to practice the strategy of the worst case scenario. According to this strategy you just have to count all the candles touching both stop loss and take profit as if they hit always the stop loss you set. If your trading system works well even in this case, it is likely to run in reality. My suggestion is to think of algorithmic systems that let prices run a little. Scalping is not good with algo trading, because it has got some problems related to spread and slippage. You can read more in my article scalping is a rip off. The less your trading system robustness is sensible to small changes, the stronger your trading strategy is.