How Important is Historical data
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How Important is Historical data?

The historical data in algorithmic trading is the first important step, and I talk about it almost in all of my courses because without historical data, we can do nothing when it comes to Robots.

We cannot test them, we cannot analyze them, we cannot even create them.

Many beginner traders try to analyze the charts and create their strategies by looking at the chart for the past months, the previous year, or the last few years.

And that is actually not wrong. That is the fact historical data, and this is what we need to use, but not by looking at it. The professional way is to use strategy builders or programs that analyze all of the bars with 100% accuracy, something that is not possible for the human brain, and I will tell you why.

If you look at the chart, you will see candlesticks and the indicators.

Firstly, the candlesticks are created by 4 values:
-the open
-the high
-the low
-the close.

These 4 values are available for every single bar on the chart.

And in the following lectures, you will see that there are thousands of bars on the chart.

Usually, we use around 50,000 bars when testing the Robots. Can someone analyze 50,000 bars with 4 values each by looking at the chart? Not really. But the strategy builders do, and they do it in seconds.

Secondly, when traders look at the indicators over the chart, they make one of the biggest mistakes because the indicators are repeating.

For example, if you look at a Bollinger Band indicator, you might create many strategies and conclusions just by looking at it.

For instance, you will see that when the price goes below the lower band, and it gets back inside, it is a great entry point, and that is true.

But the truth is that at that moment, that was not the real value for the Bollinger Bands. It repaints in the last bar. So if you look at the current moment, you will see one value that might be different if you look at it tomorrow.

The repainting of the indicators causes many traders to slip up.

And thirdly, if you choose to use just one indicator, for example, the Bollinger Bands, and you look at the chart to figure out when is the best entry to buy and when to sell it, you will see that the indicator has different parameters.

Which one would work the best?

If you test on a Demo account, you will spend months or even years testing all possible combinations. And what if you use 2 or 3 indicators in one strategy that has so many different combinations?

How would you know which option is the best? By using the historical data, we can find the best parameters for each indicator, no matter how many indicators we use and on what asset.

The only way to do this is with the strategy builders.

And in the next lecture, I will share with you more details about these programs and how useful they are for algo trading.

Petko Aleksandrov is the Head Trader and Mentor at EA Forex Academy, and in this video-How Important is Historical data, you will get the best of his experience.

You can have a look at our Free Forex Historical Data App:

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