I am wondering if there is a way to test strategies that are based on chart formations. I mean to test formations like head and shoulders, support and resistance etc. Is there a way how to test it automatically with an application? I know that you can test some strategies that are based on indicators (like moving average etc.) by some testing programs and they show you your profit, loss, highest drawdown...
For sure, but it's not that easy to do like simple strategies. First you have to quantify swings with the help of a ZigZag indicator or similar. Every swing has an specific length and angle, so you can check if the realtime pattern matches your specific pattern. It the pattern applies you can make your entry in the strategy and manage the trade.
Ok so how do you test your strategies? When you have a new strategy do you papertrade for lets say 6 month to see if it works? I would like to trade at first seasonals with entry based on a chart formation.
Market cycles change too much to trade 'strategies' in my opinion. I assume you mean a strategy is a set of rules akin to 'if this, do that'. A pattern may work for 6 months or however long youve backtested for, then when you start trading it, it no longer works because the cycle has changed.
Personally, I think seasonal's is a good approach to use. Maybe your chart formation should be something as simple as a trend line or support line break with some order flow behind it. Good common sense risk and trade management beat backtesting. A good seasonal has more edge than a head & shoulders or triangle pattern (that only you can see)