I just noticed that many people ask about the correct way to backtest forex. Actually, it's not as difficult as you think, but you need to understand the fundamentals first.

It all starts with having a clear trading system. You need to specify details such as which currency pairs to trade, what timeframe to use, and what strategy to apply. Only then can you backtest forex in a meaningful way. If you set vague conditions, the results won't be reliable.

For example, if we trade EURUSD on a 5-minute chart using SMA(5) crossing above SMA(20) as a buy signal, and crossing below as a sell signal, setting a stop loss at -20%, then try backtesting this system with historical data to see if it can actually generate profit.

Regarding tools, if you don't want to write complex code, Excel or Google Sheets will suffice. Just load the data, create a formula to calculate SMA, and use the IF function to set buy/sell conditions. It's not as complicated as you think. But the downside is, if the data is very large, it may slow down.

Another option is TradingView, which makes backtesting forex much easier. It has a Strategy Tester feature. For example, try the BarUpDn strategy, which buys when it sees a green candle and sells when it sees a red candle. Test it on EURUSD daily data for the past year. The result shows a loss of -0.94%, with 45 trades and a win rate of only 35.56%. This indicates the system needs improvement.

The key metrics to look at when backtesting forex are cumulative return, volatility, Sharpe Ratio, and Maximum Drawdown. These numbers tell you whether your system is stable and capable of generating consistent profits.

But remember, backtesting forex with historical data does not guarantee the same results in the future. So, after backtesting, try using a demo account or a small amount of money to test in real market conditions. This is called Forward Testing, and it’s just as important as backtesting forex itself.