Testing Indicators

The goal of each forex player is to multiply the invested money. To achieve it, each player has to perform appropriate transactions in a good time. In order to determine the timing and the transaction, stock exchange players have can use a number of tools. One of the commonly used tools are indicators which, based on current market behavior, can tell likely future changes in prices.

Currency trading software for individuals, provided by the brokerage house, provides build in all the most widely known indicators. The effectiveness of the indicator is, however, difficult to determine. To determine how efficient each indicator is, I will execute a series of tests, and the results will be published on the blog.

The most common test is based on historical data. In such tests, the test cases can be created basing on indicator parameters, which are:
- Time period
- The currency pair
- Stop Loss and Take Profit - signals to closing
- Other attributes depending on the concrete indicator (calculation period, number of bars, etc.)
In addition, the indicators have different interpretations, so you can use them in different ways, which gives you great flexibility but also increases the number of test cases needed to be checked.
 

My tests will use JForex framework developed by Dukascopy Swiss bank. JForex framework includes more than 100 indicators which can be used in JForex Platform, or in your own Java application.
For each indicator, I will prepare as much test cases as possible, with purpose to show whether the indicator is worth using, and how to use it, in case to achieve the higher profit.