I just saw a lot of people asking about forex backtesting, and honestly, it’s something that’s indispensable for traders who want their system to be truly effective—not just look good on paper.

This isn’t as difficult as you might think. Most new traders believe that backtesting requires writing complex programs, but in reality, there are much simpler ways. Whether you use Excel, Google Sheets, or even TradingView, which has built-in tools.

Let’s first talk about how to do a backtest. What you need to do is clearly define your trading strategy, then use historical price data to test it. For example, if you use an SMA 5 crossing above an SMA 20 as a buy signal, the program should find out how much profit or loss you would have made if you followed this strategy from when to when. The assumption is that if the system worked well in the past, it’s likely to work well in the future.

If you want a simple way to start, Excel or Google Sheets are good options. Free backtest programs like this can be used immediately. You just load the price data, create a formula to calculate the SMA, and set conditions—such as if SMA 5 is greater than SMA 20, return 1, and if it’s less, return 0. Then create other columns to track buy and sell points, calculate profit and loss, and you’ll get the results right away.

But if you want something even more convenient, TradingView is a better tool. It has a built-in Strategy Tester and also provides sample strategies you can try right away without having to write anything yourself. For example, try testing the BarUpDn strategy with EURUSD on the daily timeframe, over the past 1 year. It will show you whether it made a profit or a loss, how many trades were made, what the win rate was, and much more.

The things you should pay attention to during backtesting are which numbers to look at. Cumulative return comes first. It tells you how much total profit or loss you made, but you should also look at the percentage per year so you can compare accurately.

Next, look at the Sharpe Ratio, which is calculated by dividing the return by the risk. The higher it is, the better, because it shows how much return you get relative to the risk you have to take. A good system should produce high returns with low risk.

And most importantly, there’s the Maximum Drawdown. This number tells you how much your capital could have lost at most during the test period. If the drawdown is too high, the system may not be resilient enough to handle risk.

In reality, backtesting has limitations because it uses historical data, and the market may not repeat the same way in the future. So after you finish a backtest, try using a demo account or trading with a small amount of money on the real market to build more confidence in your system.

In summary, there are many free backtesting programs to choose from, and you don’t need to write complicated code. Testing your trading system with historical data is an important step before you go live with real money. Start with Excel or TradingView first, and then develop it further if needed.