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Why you should never trust backtests with less than 100% accuracy

Sadly, the retail trading industry is saturated with ill-intended people who have absolutely no quarrels scamming average people out of their hard earned money. One of the most common ways I see providers of trading indicators and expert advisors fraud their way to making money is by showing backtests that are portraying their trading systems to be more profitable than what they really are.

 

As a rule of thumb, never trust a backtest report that shows less than 99.9% accurate history quality. Most trading software providers use 90% history quality, which never should be trusted.


 


To demonstrate, let's take a look at some examples.


Below you see a backtest from 2010 to 2022 of ROMR SCALPER FX tested on 99% accurate history data and the test does not include trading fees.

  • Starting balance 1000 $

  • Total net profit 394.676

  • Profit factor 1.91


Now let's look at the same EA in the same period, but tested on 100% accurate history data and which includes broker commissions of 6$ per round lot.

  • Starting balance 1000 $

  • Total net profit 91.533 $

  • Profit factor 1.47


As you can see, the results are massively different. The 99% history quality returns roughly 4x the profit with a much lower drawdown.


When tests are done on 90% history data or even lower quality, this discrepancy becomes larger.


In general I advice against paying for any trading software that does not provide live forward monitoring. The same is true for trading courses. If the author does not show verified track records and live account monitoring, it is most likely a scam.


I hope this short article has been helpful and will help you avoid falling for dishonest marketeers.


Stay green!

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