On a platform that only supports Forex (etc.) backtesting and not Binary Options (on a Forex asset), is there a mathematical model to embed it?
On a platform that only supports Forex (etc.) backtesting and not Binary Options (on a Forex asset), is there a mathematical model to embed it?
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External question — Quantitative Finance Stack Exchange
Author: TotoposDiagramChaseApp
Original post: https://quant.stackexchange.com/questions/85684
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
Adaptation: HTML converted to plain text; contact email addresses removed.
So, I'm using MetaTrader5 to get data and form a Binary Options bot, but to backtest I've just been keeping track (within my EA code) virtual binary Up/Down orders paired with expiry and bet amount. And if it turns out to be a winner, then incrementing a counter. Then periodically displaying win rate on chart.
However, to be sure I'm not deluding myself into thinking I've got a winning EA for binary options, I thought there might be a way to backtest it in a Forex environment. I googled and the AI gave a trick using Stop-loss and Take-profit:
Make the following changes to the EA. If it's already making fake / representative forex orders, change them like the following instructions to make them accurate models of our BO orders.
Step 3: Handle the Binary Options "Fix" in CodeBecause MT5 will output
a Profit/Loss in pips (rather than fixed binary payout percentages),
you may need to make minor tweaks to your EA’s code (in the MQL5
Editor) depending on how it's written:Ensure your EA has fixed Take
Profit (TP) and Stop Loss (SL) logic. In binary options, a win or loss
relies strictly on whether the price closes higher/lower than your
strike price at expiration.Set your EA’s TP to the number of points
that equate to your desired "Payout Ratio" so the backtesting report's
mathematical equity curve aligns with a binary options math model.
However, I'm not finding it to work. But I thought why not this. Forgetting SL/TP for now. Set the lots
$L$
so that the amount I bet is equal to
$\\\$0.92$
(the payout on a
$\\\$1$
bet that wins in binary options), then if it truly wins, we should be able to take the new lot aount
$L'$
and form the error
$E_L = L' - L$
, and make some obviously-going-to-quickly lose bet of
$E_L$
lots and then it would settle quickly and I should have
$92$
cents from winning the bet. And of course do the opposite if I lose bet. However, is this method actually going to work in practice?
Is there a better, more robust way to model Binary Options in a pure Forex backtesting environment?
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Quoted from Forex.com.bd-Editorial External question — Quantitative Finance Stack Exchange Author: TotoposDiagramChaseApp Source score (net votes, not local likes): 0 Original post: https://quant.stackexchange.com/questions/85684 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. So, I'm using MetaTrader5 to get data and form a Binary Options bot, but to backtest I've just been keeping track (within my EA code) virtual binary Up/Down orders paired with expiry and bet amount. And if it turns out to be a winner, then incrementing a counter. Then periodically displaying win rate on chart. However, to be sure I'm not deluding myself into thinking I've got a winning EA for binary options, I thought there might be a way to backtest it in a Forex environment. I googled and the AI gave a trick using Stop-loss and Take-profit: Make the following changes to the EA. If it's already making fake / representative forex orders, change them like the following instructions to make them accurate models of our BO orders. Step 3: Handle the Binary Options "Fix" in CodeBecause MT5 will output a Profit/Loss in pips (rather than fixed binary payout percentages), you may need to make minor tweaks to your EA’s code (in the MQL5 Editor) depending on how it's written:Ensure your EA has fixed Take Profit (TP) and Stop Loss (SL) logic. In binary options, a win or loss relies strictly on whether the price closes higher/lower than your strike price at expiration.Set your EA’s TP to the number of points that equate to your desired "Payout Ratio" so the backtesting report's mathematical equity curve aligns with a binary options math model. However, I'm not finding it to work. But I thought why not this. Forgetting SL/TP for now. Set the lots $L$ so that the amount I bet is equal to $\\\$0.92$ (the payout on a $\\\$1$ bet that wins in binary options), then if it truly wins, we should be able to take the new lot aount $L'$ and form the error $E_L = L' - L$ , and make some obviously-going-to-quickly lose bet of $E_L$ lots and then it would settle quickly and I should have $92$ cents from winning the bet. And of course do the opposite if I lose bet. However, is this method actually going to work in practice? Is there a better, more robust way to model Binary Options in a pure Forex backtesting environment?
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