One of the most important steps to take before starting your trading journey in the lucrative forex market is finding a suitable strategy. The success of your trading career greatly depends on the profit potential of your strategy. Thus, you need to spend enough time devising, testing and refining your strategies. Popular trading platforms like MT4 and MT5 have made the process easier with the powerful tool called strategy tester which allows you to backtest the strategies using historical market data.
MetaTrader 4 is the first choice of millions of beginners. Many people use this trading app due to its user-friendly interface and useful tools. MT5 is a modern and advanced version with added tools and features.
In this blog, you will get to learn everything about backtesting strategies on MetaTrader platforms and how similar or different they are. This will help you to choose the perfect trading platform for testing your strategy with greater ease.
Basics Of Backtesting
When you devise a new strategy, you need to evaluate how it will perform in the forex market but it will be risky to implement it on a live trading account right away as you are not sure if it will yield the expected results. Thus, you make use of the strategy tester on the trading platforms as there you get to try the strategy without any risk using past market data. This allows you to get a preview of the performance of your trading system or strategy before trying it on a live account.
MT4: The Old Friend Of Traders
MetaTrader 4 was one of the very first trading softwares that was designed to cater to the needs of forex traders. The MT4 platform was launched in 2005 and currency trading has become easier ever since. Even though a lot of new trading softwares was launched in the following years, MT4 has retained its position as the most popular and widely used forex trading platform.
The comfort and convenience offered by MT4 have helped it to stand ahead of other softwares and it has built a solid user base which is constantly growing. The platform is preferred by novice and seasoned traders alike. MT4 is also supported by almost all forex brokers which makes it easier to access as well.
MT5: The Advanced Successor
MT5 was introduced as the advanced successor of MT4 at first but it was not just an updated version. MT5 is a multi-asset trading platform loaded with powerful tools and features to offer a superior trading experience to users. Just like its sibling, you can also download the platform free of cost. MT5 had a lot of new tools and features like more timeframes for analysis, more indicators and more order types which made it popular among modern traders.
MT5 was able to overcome a lot of limitations of the older version and it was especially suitable for those who are interested in algorithmic
trading or trading automation. MT4 users can also trade with trading bots or EAs but MT5 is faster and more efficient in comparison which is a plus point. However, it is not supported by all brokers like its popular predecessor.
Putting Them to the Test
Now that you know the differences between MT4 and MT5, let’s move on to the procedure of backtesting on these platforms.
Backtesting with MT4
- Strategy Tester – The built-in strategy tester in MT4 makes the backtesting process easier allowing you to do both manual and automated backtesting with historical price data of your preferred currency pairs.
- Programming Language – MT4 users can use MQL4 programming language for coding custom indicators, EAs or scripts and then backtest them easily.
- Optimisation – MT4 allows you to adjust the trading parameters in a way that it complements the strategy and finds suitable settings for optimising the performance of your trading system.
- Visual Mode – You can turn on the visual mode on MT4 to watch the working of your strategy in historical market conditions.
- Report Generation – After backtesting, you can also generate reports for reviewing the performance of your strategy and refine it based on the results.
Backtesting with MT5
- Advanced Strategy Tester – MT5 also offers a strategy tester like MT4 but it is an updated and improved version with advanced features.
- Programming Language – MT5 uses MQL5 programming language which is perfect for developing complex strategies as it is more versatile than MQL4.
- Multi-Threaded Testing – Since MT5 supports multi-threaded testing, you can easily backtest multiple strategies in a faster and more efficient manner.
- Cloud-Based Testing – MT5 users can also use cloud agents for backtesting and the cloud-based testing is more extensive with greater speed.
- Forward Testing – MT5 allows you to combine both backtesting and forward testing so that you can see the performance of your strategy in both historical and real-time market conditions.
- Enhanced Reporting – The reporting capabilities of MT5 are also advanced as it generates graphical representation, and comprehensive statistics and uses a wide range of performance metrics for reviewing the strategy.
Strategy Testing on MT4/MT5 Demo Accounts
Another way to test your strategy in MT4 and MT5 is demo trading. Demo accounts work just like live trading accounts and they replicate the real-time market conditions. But the trades you place are not being executed and the demo accounts are not connected to the live market. You will not be risking any real money in the process but will get to see the results that you would have gotten if you were trading for real.
Demo Trading on MT4
One thing that many users like about MT4 is the simplicity which makes it easier to navigate even for a beginner. Because of this, many new traders prefer MT4 demo accounts for both learning and strategy testing. The number of tools is less in comparison to MT5 and this is ideal for a newbie who may get confused and overwhelmed when there are too many options to choose from. The demo trading experience on MT4 will surely make live trading easier for everyone regardless of your trading style and strategy.
Strategy Testing with MT5
The forward testing capabilities of MT5 make it perfect for strategy testing. You can easily open a demo account on MT5 and execute your strategy to see how it will work in real-time market conditions. But MT5 is not offered by all brokers, unlike MT4 which is more popular. However, you get a lot of advanced tools and a wide range of options, which makes it a suitable platform for traders who want to try out complex strategies or diversify by exploring multiple asset classes.
Final Verdict
In the end, every trader will have their own preferences and requirements which need to be considered for finding an ideal trading platform that complements their skills. MT4 would be a match for any beginner who wants to keep things simple. You can easily learn the technicalities of trading and then use the strategy tester to evaluate the performance of your strategy.
On the other hand, MT5 gives you more tools to work and the strategy tester is more advanced and efficient to meet the needs and requirements of modern traders. You can choose the one that fits your bill after trying both.
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