There are trading strategies that are built around only trading certain market sessions. Generally, this means trading the London or New York sessions, but some people also like to trade the Sydney Hour.
Whatever the case, manually backtesting these strategies can be especially tedious because you have to do the conversions in your head, on top of keeping track of the rules of the trading method. This can lead to mistakes and inaccurate results.
How can we make this easier?
In this post, I'm going to share how you can automatically mark off the market sessions that you want to test in. This will allow you to concentrate on using the proper risk and following the rules of the system you are testing. I will also show you how to setup your tests to the timezone you want to use (GMT, NY, local, etc.) from the beginning, so you have even fewer time related testing mistakes.
This is what it will look like:
If you want to mark off multiple time periods, you can do that too. On top of that, you are not limited to just established market sessions.
Maybe you want to highlight only the times that you are able to trade before you have to go to sleep. Or you might only want to trade during the times that both London and NY are open.
So if this is something that you would find useful, the video below will show you exactly how to do it. However, if you prefer the text version, you can read it after the video.
See Exactly When You Should Be Testing
As you probably know, my favorite backtesting software is Forex Tester 2, so that is what I am going use to demonstrate this. Other software programs may have this capability, but this is what I use and recommend.
There are several free Metatrader indicators that can do this, so do some Google searching to find the one you like best. Luckily Forex Tester 2 already has an indicator built in.
It is called the Time Box indicator and it will create a box around price action during the time that you specify. To make use of this indicator, first click on the indicators button.
Then select the Time Box indicator. It is near the bottom of the list, you will have to scroll down to find it.
Then when the indicator properties window comes up, you can set the properties, depending on what information you want to see.
This is how to set the parameters:
- From hour: The time that you want the time box to begin, full hours only.
- To hour: The time that you want the time box to end, full hours only.
- Fill color: The color that you want the box to be. I have found that the darker colors are less distracting, but preferences will vary.
- Display price range: Setting this to Yes will show the number of pips in the price range.
This brings up one question though, how do you know what timezone your testing is set to? In order to find this out, set Forex Tester 2 to History Mode and go to the menu and select Tools > Data Center.
When you look at the next screen, concentrate to the time shift slider. When you downloaded the data the first time, you probably had it set to zero. This means that the data is in GMT.
If you want to set it to another time zone, then change it here by sliding the shift time slider to add or subtract hours from GMT. Or you can just keep in GMT and change the Time Box indicator according. This is probably the easier way to do it. Then when you click on Update from server, the time zone of the data will be downloaded again and changed accordingly.
Finally, if you want to mark off multiple time zones at the same time, just add another Time Box and make it a different color. Here is an example:
I hope that this tutorial will make it easier for you to backtest a time based trading strategy. The best part is that this indicator is already included in Forex Tester 2.
For more Forex Tester 2 tips, check out my other tutorials.