Before computers were a thing, traders used to draw their charts by hand. Munehisa Homma is famous for using Japanese Candlesticks to backtest and successfully trade what many consider the first futures market in the world, the Dojima Rice Exchange of Osaka.
Fast forward to today, and manual backtesting is still one of the best ways to learn how to trade, and computers have allowed us to speed up the process.
In this post, I’ll show you why manual backtesting is so useful, what to look for in the best manual Forex backtesting software, and my top 3 picks for the best software available right now.
Why Manual Backtesting Software is an Essential Trading Tool
Many new traders think that backtesting software is only for automated trading strategies.
Nothing could be further from the truth.
Manual backtesting software is a vital tool for the manual/discretionary trader. I also firmly believe that manual backtesting is the best place for most people to start, when building automated strategies.
There are some trading rules that cannot be easily programmed into a computer.
So if you start with manual backtesting, you can develop any type of trading strategy.
With a fully automated trading strategy, you’re limited by the capabilities of the programming language or platform.
When you find a strategy that’s profitable in manual testing, then you can figure out ways to automate parts of the strategy. Sometimes it’s even possible to automate the whole thing.
…or maybe you just want to stick to manual trading.
That’s great too.
The key is that you have a choice, when you start developing with manual backtesting software.
Manual backtesting also allows you to get to know a trading strategy very well.
Like going on a date with the same person many times, you really get to know the quirks, strengths and annoying things about a trading system.
When you do automated backtesting, it can be very easy to miss these things because you don’t see the result of every trade. You start the test, let it run, then you check the results.
Finally, manual backtesting can be used as a simulator to help you practice an existing trading strategy.
This is similar to how pilots practice flying in a flight simulator.
Just because you have a trading strategy that already works, does not mean that you can just sit back and relax.
Professional basketball players practice free throws all the time. It’s a seemingly routine skill, but if they don’t practice, they will get worse.
If you don’t practice, you’ll start to lose your edge too.
Now that you understand the benefits of manual backtesting software, let’s look at the components of a great software package.
What to Look for in Manual Forex Backtesting Software
These are the criteria that I used to pick the backtesting software I recommend.
- Ease of use
- Cost
- Historical data
- Analytics
Figure out which features matter the most to you and choose accordingly.
Ease of Use
The first feature I look for is how easy is it to use.
Most software packages work in a similar way. They look like trading platforms and act like trading platforms.
Once in awhile, some software developers try to get too creative and things get weird. But for the most part, most software will look similar and is usually easy to use.
But keep an eye out for for features that streamline the backtesting process.
Manually entering trades is tedious. Any functions that speeds up this process is worth its weight in gold.
The Cost of Manual Forex Backtesting Software
This is a consideration for many traders, so I’ve chosen software that’s affordable, but still has the features that you would need to do a professional backtest.
The price of manual Forex backtesting software starts at about $100 and can cost as much as $500. This is just for the software itself.
High quality historical data can cost anywhere from a few hundred dollars per market, to a few thousand dollars. Data subscription plans generally start at about $30 per month.
So it’s very important to figure out what kind of data a software package includes, before buying it.
You could be in for a surprise, if there’s little to no data available in a software package and you have to pay a lot more to get the data you need to test.
Data Available
That brings us to historical data.
Companies take different approaches to providing data. Some are generous, while others will charge you for every option.
Each approach has its benefits and downsides.
Services that cost more will generally have more data points and provide cleaner data. Their data is also usually more up to date.
If you need the best data then this is the way to go.
This is especially true if you’re backtesting strategies on lower timeframes. The quality of the data matters much more because there is less margin for error.
Cheaper data will usually have fewer timeframes available and the data might not be as recent. But this is a great option if you’re only backtesting higher timeframes like the daily chart or the 4 -hour.
Again, figure out what you need.
The most expensive option is not always the best.
Analytics
This is the biggest weakness in most of the backtesting products I’ve used.
There was a web app back in the day called Tradingrex which got me really excited because they provided legit reporting, basically for free. Unfortunately, they weren’t able to make any money and folded.
But it’s really hard to find detailed analytics in manual backtesting software. Pretty much all software will give you win/loss percentage, win/loss ratio, max drawdown and number of winning/losing trade in a row.
The bare bones stuff.
However, there are some metrics that can lead to big breakthroughs in the development of a strategy.
Things like MFE/MAE, Monte Carlo Simulations and monthly/yearly performance breakdowns are simply not available in most manual backtesting packages.
So if you can find a software package with excellent analytics, that is usually going to be the differentiating factor.
My Picks for the Best Forex Backtesting Software
Here are my picks for the top 3 best software packages on the market.
I’ll give you the pros and cons of each, so you can make an informed decision.
3. Soft4FX
I’ll just come out and say it…
If you’re on a very tight budget, then Soft4FX is a good place to start.
Otherwise, you’re better off with the other options on this list.
However, I think it’s fantastic that a product like this exists, because it gives traders options. It also creates competition, which usually makes all products in the space better.
There are also a couple of really good reasons to use Soft4FX as a secondary backtesting option.
Pros
- Add-on to MetaTrader 4 and 5
- The ability to upload your own historical data
- Very affordable price
- Can be used with 2 MetaTrader accounts and can be transferred
- Pay once, no ongoing fees
- Free data from 1 source
Cons
- Clunky interface
- Only 1 data source available in the software, you have to upload other sources
- Minimal reporting and analytics available
- Only available for Windows
- Have to export data into Excel to get advanced analytics
Final Thoughts on Soft4FX
Realistically, if you’re short on cash, it’s probably better to wait for Forex Tester to have a sale. The sale price of Forex Tester is only a few dollars more than the regular price of Soft4FX.
However, if you really like using MetaTrader and you think that the features in Soft4FX are good enough, then it’s a good option.
It can also be great as a secondary backtesting tool. Maybe you have a second laptop or Windows tablet that you travel with and you simply want to be able to play around with some ideas while you’re on the road.
Soft4FX is a great option and you won’t have to pay more for a license from one of the more expensive providers. You could even install it on 2 secondary computers, since it comes with 2 licenses.
2. Forex Tester
This has been the industry standard for many years, so you cannot go wrong with using Forex Tester.
However, there are several lingering shortcomings that they have not addressed over the years.
With new competitors coming out, these gaps have become even more glaring, dropping Forex Tester to my #2 pick.
Pros
- Easy to use, similar to most broker trading platforms
- Excellent support, they always return emails quickly
- Common indicators are built in
- Multiple data sources available on paid plan, updated frequently
- Can upload your own historical data
- Backtest on multiple charts at the same time
- Support for automated backtesting, similar to MetaTrader
- Free trial version
- Easy to transfer license between computers
- Neural automated backtesting optimizers, I haven’t used them, so I cannot comment on how well they work
Cons
- Difficult to get custom EAs and indicators created
- It’s always seemed like the developers are not traders, they aren’t good at creating trader-friendly features.
- Reporting and analytics are very limited
- The historical data subscription can increase the cost significantly
- Very limited historical data available with the free data plan
- Only available for Windows, does not work well on Virtual Machines (VMs)
- Can get slow when adding just a couple of indicators to the chart
- Have to export data into Excel to get advanced analytics
- The trading education modules aren’t useful
- Automated backtesting functions are similar to MetaTrader, nothing new or improved
Final Thoughts on Forex Tester
I have a love/hate relationship with Forex Tester. I’ve heard this sentiment echoed by many professional traders over the years.
On one hand, the core set of features is really good. They have been the best manual Forex backtesting option for a long time.
When it goes on sale, it’s also very affordable.
But as you can see in the list above, there are also a lot of downsides.
To me, the most disappointing thing is that the developer’s approach to the evolution of Forex Tester has been iterative. I’ve always seen a ton of potential with Forex Tester, but they haven’t been able to cash in on what’s possible.
The software gets slightly better with every new version, but it never has any quantum leaps.
It’s like what Microsoft does.
Microsoft is content to make a slightly better version of their products every year. If we’re all being honest, Windows 11 is only slightly better than Windows XP.
All things considered, Forex Tester is still a great option.
But there’s something that I like better…
1. NakedMarkets
This is a new entry to the manual Forex backtesting software market and I really like it.
I like it so much that it’s my pick for the best Forex backtesting software available right now.
The primary reason that I like it so much is because it has features that are useful to real traders. The workflow of the software is intuitive and streamlines the trading strategy development process.
Many times, software solutions are built by developers, not traders. So there are features that may seem useful from an outsider’s perspective.
But a real trader wouldn’t use them.
What impressed me is that NakedMarkets has manual backtesting solutions that are better than anything I could have ever thought of. Keep in mind, I’ve been trading since 2007…so I had a really good picture of what I wanted to use.
For example, the idea of Trading Rules in NakedMarkets is fantastic. They are basically building blocks that you can use to speed up manual backtesting, or build up to fully automated strategies.
Just drag and drop them on the chart and they can set your stop loss, take profit, trailing stop and more. This feature alone can save you hours of backtesting time.
But that’s just the beginning. You can use multiple Trading Rules to build a manual system, or combine them to create a partially or fully automated trading strategy.
The visual Rule Manager also has more features than similar “no-code” building tools out there.
Pros
- Easy to use, similar to most broker trading platforms
- Excellent support, they answer quickly
- Common indicators are built in
- FREE high quality data from multiple brokers
- Advanced reports and analytics for NakedMarkets, MetaTrader, Forex Tester and Oanda (via Oanda API)
- Community where you can request features and share trading strategies to test
- Drag and drop trading rules for entries, exits and trade management
- Create trading rules without coding
- Designed and developed by a full-time Forex trader
- Free trial version
Cons
- This is still the first version of the software, so there are still small kinks to be worked out
- Only available for Windows, I haven’t tested it on a Virtual Machine (VM)
- Since the rules tool is visual, there might be some limitations on the complexity of the rules you can create
Final Thoughts on NakedMarkets
Although NakedMarkets is new, I love the direction that they are taking.
It’s a fresh take on manual backtesting and in my opinion, a quantum leap in streamlining the process.
Backtesting can be boring…you have to enter the same orders over and over.
But if you can automate some parts of the process with Rules, then it can make the process more bearable.
It might even make it fun.
You can learn more about NakedMarkets and get a discount here.
Conclusion
So that’s my current pick for the best software for manual Forex backtesting.
Sure, you could use MetaTrader or TradingView for manual backtesting. But they are not built for that and you would have to use a spreadsheet to record your trades.
That’s really clunky and takes a long time. The software mentioned above makes the process much easier.
I’ll have more tutorials and updates using NakedMarkets in the future. Be sure to sign up for the email list to get future updates.
What’s your favorite software? Got questions? Let us know on Twitter.
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