Should you really trust your broker’s data?
In this episode of Truth About FX, Walter talks about backtesting your data and the factor that you must consider when choosing between the data from your broker or your live trades. Do timeframes matter? Are there certain points in the chart that you should be looking at?
Hugh shares his thoughts as well and according to him, it’s really about timing and formations.
Download (Duration: 04:55 / 11.8 MB)
In This Episode:
00:45 – spread dependent
02:06 – using broker’s data
02:34 – timing issue
04:11 – switches back and forth
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. Do I need to backtest with the broker’s data or the same broker’s data that I’m going to trade my live account with?
Walter: I’m probably a little bit lax on this. I understand why people want to do this. The only real issue, the only real reason I think you would do this like you’re trading a system that’s kind of either really low time frame or sort of spread-dependent.
There are some systems that will only trade at the spread at a certain width or whatever. If that is the case, if you’re trading lower time frames and when I say lower, I mean like under four hours or you’re trading a system where it’s like it will only buy if the spread is less than 5 pips and it’s kind of like a scalping sort of thing. A lot of people do that sort of stuff with like a robot, automated systems.
That totally makes sense to me. I think we’re a little bit too concerned about that as traders especially if you’re trading the daily charts or the four-hour charts or the twelve-hour charts.
I don’t really see why you would need to have your broker’s data. I just don’t. Unless, like I said, unless of course your system is wholly dependent on the spread or lower time frames and you want to see how the market behaves especially in those, in liquid periods.
Sometimes, you fear if your broker is a market-maker it will widen up a bit like in your interbank market and things like that so that makes total sense to me. But if you’re sitting here trading kangaroo tails on the daily chart. I am a big fan of really finding charts that you like even if they aren’t your broker’s charts and using those. I know that seems weird to some people but it always seems weird to me that people feel like they have to trade their broker’s, they had to use their broker’s data.
It makes sense like if the high on the candle on your broker differs from the high on the chart that you are using then that is where you base you stop placement or whatever. That makes a lot of sense.
I think for most of the time if you’re just trading higher time frames like I do and a lot of my friends do, I don’t really see the issue with using other data but, that is just my opinion. I can see where people would feel like it‘s really critical.
Hugh: Because it’s really a timing issue, right? The formation like the kangaroo tails is just a matter of timing.
Walter: Exactly, right. You could look at all different ways like the kangaroo tail on the two-day chart is a candle up and a candle down. Maybe you would like a big shadow on the daily chart.
I just saw that last week. These are the sort of things and so a big shadow on one broker’s four-hour chart might just be like a bearish candle on another broker’s chart, not quite a big shadow. All these sort of things come into play. Absolutely. You just have to decide.
I think you can go a little bit crazy with this, I guess, is what I’m saying. People ask me all the time, one of the biggest questions. Which closing time should I use? The answer is always the same. For me, it depends on what you want. For me, I want in the morning for me to see the new daily candle as soon as possible. So that means that I trade the 5 P.M. New York time close charts.
If I would’ve trade midnight GMT charts, it just means that my closing, the new daily candles will pop up two hours later for me in the morning and I don’t like that. I like to see it as soon as possible.
The other thing I don’t like about those midnight GMT charts is that there’s a little two-hour Sunday candle so it’s like a “daily” candle but it’s only two hours long. That’s a little bit weird to me too that you have to ignore those on your charts.
For me, just use what you like. Our friend Denis, he uses both. So he has like this indicator — I think he posted it in the forum that was kind of cool. — It switches back and forth between 5 P.M New York close and midnight GMT close. You can kind of see what the candles look like in both instances.
I think that makes a lot of sense if you’re looking for more trades, which a lot of traders are when they are trading these higher time frames. I don’t think it really matters when you are in a higher time frame but that’s just me.
Hugh: That makes a lot of sense. I would agree. Thanks, Walter.
Walter: Thank you.