Binary options testing is the process of searching for new or checking existing trading systems. Most binary options strategies are an adaptation of technical indicators and graphical analysis techniques used in trading on the financial and commodity markets.
Despite the fact that these are time-tested trading systems, the process of adjusting to the features of the contract can lead to losses for the strategy. In other cases, the rules of binary options trading do not differ in any way from the general exchange ones, so transactions in practice are possible only after theoretical tests.
Binary options testing has a number of features due to the configuration of the brokers ' terminal, the provider quotes selected by the underlying asset and the type of contract.
Features of binary options testing
A binary option provides two types of results – a loss equal to the amount of the investment, and a profit that is accrued as a percentage of deferred funds. Therefore, the result of the maximum drawdown (loss) and profit is calculated in quantitative and percentage terms.
In order for the system to systematically bring profit, the ratio of positive transactions (contracts) should be 60% of trades for short-term , intraday strategies and 70% on the mid-term and long-term. The premium accrued for each correctly predicted option must be equal to or higher than 80%
Time during testing expiration is taken as a multiple of the timeframe terminal: 5, 15, 30 minutes; 1, 4, 24 hours.
Testing is carried out step by step, since automatic testers for binary options have not become widespread.
If the broker does not have built-in indicators, third-party platforms can be used only if the quotes of the underlying asset match. If the trader tests the types of options associated with going beyond the range or touching the levels, is additionally compared volatility.
When testing, you can not use the methods of early closing or extending the expiration period available for the American type of option, in order to avoid the effect of fitting the results.
Selection of the test sample length
Each the strategy has its own time range on which it is applied, measured in the above standard units-timestamps, in the form candlesticks or bars. The correct choice of the length of this range is the key to the coincidence of theoretical tests with practical trading.
The historical segment should include both upward and downward trends and sections flat. Technical indicators included in the trading system can give positive results on trends, but lose money on flats or vice versa. To make the strategy work on in the long-term period, the trader must achieve symmetry of results.
Based on practical advice and the principle of data mining, the minimum historical period should contain 2000 workers timeframes (candles, bars).
Demo trades
Brokers binary options provide the trader with the possibility of risk-free trading on a simulator account with a training deposit. Since the tests are tied to working out the signals of the system manually, the trader should take advantage of the offer of demo trades to study the functionality of the platform and work out the opening of contracts to automatism.
The ideal option for a practical start after the tests will be "free options" - contracts that are opened without a deposit, with a premium for the correct forecast and writing off the loss at the expense of the broker.
Control of results
During the tests, the trader must keep records, counting the number of profitable trades (percentage), losing trades in a row and the maximum loss. These three parameters are required for monitoring and comparison with similar calculations of the practical part of the strategy application.
Over time, the volatility, the duration of the flats and trends, which may lead to an increase in the number of negative trades. If the trader does not optimize the strategy, changes tactics, losses will exceed positive forecasts and destroy the deposit.
The discrepancy between theoretical and practical data will help to notice a negative trend in time and conduct new tests by substituting other parameters of indicators or adding tactical techniques.