Absolute vs. percentage price change in backtesting | Traders Hideout


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Absolute vs. percentage price change in backtesting

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Legendary Market Wizard
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If your trading stocks, feel free to use either.

If you trading futures, your prices are normally "roll adjusted" by taking the outright spread between the prompt and second contract on a predefined date. If this is the case, you can not use percentage anything - percentage breakouts, stops, profit targets etc etc - in long term back tests, as your historical prices will change on every roll over. While with some contracts (index's, currencies) this may not be a huge factor, in other commodities it can be. As an example of this I've attached a 20 year chart on the NYMEX Gasoline / RBOB / RB contract. You'll see that it will show that prices used to be negative - obviously they weren't!

You can also "roll adjust" by taking the percentage spread between the prompt and second contract on a predefined date. This will maintain price integrity for things like percentage stops etc. Unfortunately you can now no longer use anything in fixed points or dollars (including commissions).

The only way I know to use percentage's with roll adjusted futures contracts is to use two different contract price feeds, one roll adjusted and one not roll adjusted. Hence the 100 day percentage change becomes
(Close of today of roll adjusted contract - Close of 100 days ago of roll adjusted contract) / Close of 100 days ago of non-roll adjusted contract

Attached Thumbnails
Absolute vs. percentage price change in backtesting-180421-rbob.png  

Last edited by SMCJB; April 21st, 2018 at 11:33 AM. Reason: Spelling and forgot to add chart
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