What’s the right process or best approach to backtestng trade setups and strategies | Traders Hideout

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What’s the right process or best approach to backtestng trade setups and strategies

  #5 (permalink)

North Carolina
Trading Experience: Beginner
Platform: NinjaTrader, Tradestation
Favorite Futures: es
Posts: 644 since Nov 2011

@kevinhpchan Okay replay is not backtesting. Backtesting is where you have fully defined your rules and tested them historically. As for the structured process, you will have to create that. The best simulation of live trading is trading in the simulator on live basis. There are small inaccuracies in most replay engines, unfortunately. In addition, even if the replay engine were accurate, you still have the problem that it is difficult to incorporate non price information or price information on different frequencies. Notice that most traders have adopted the "statistical" perspective on markets even though statistical properties of markets are not very reliable. Many of the large traders, instead, have adopted opportunistic or speculative mindset. As an example, the early adopters of Bitcoin weren't thinking statistically, they were buying opportunistically with an incredible risk to reward ratio. I think that both thinking styles can compliment one another but in the replay you can only practice on statistical basis (unless you have an engine that can also replay the news for a day-- would be nice).

It is what you create. However, if you want to practice then I recommend reducing the number of variants (things that can vary). Most day traders focus on the first and last hours of the session. Given that, focusing on those areas where you plan to trade will be more productive. By reducing the variants, you can improve your confidence of being able to translate the performance into a live account. For example, trading with a max 3 point stop loss is going to be easier to translate into live trading then setting your stop based on your discretion on the fly. Make as much of your trading as invariant as possible is the basic goal. If you can trade well under these invariant conditions, you use realistic to slightly pessimistic fill engine, and go live you should see similar results provided the market doesn't change. As for enhancing the learning process, careful documentation and serious review of your trades will help with that.

One other aspect that needs to be developed is market cognition. The mind of a trader should be active, accurate, and clear during trading.

kevinhpchan View Post
I’m new to trading futures and would like to develop my skills by replay. Is there a systematic approach to practicing or back testing setups and trade strategies? I’ll take the time to practice but was wondering if there’s a structured process that best simulates live trading and more importantly enhances the learning process. T

Last edited by tpredictor; July 2nd, 2018 at 07:22 AM.
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