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Validating an automated Forex strategy with performance that is just too good?
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Validating an automated Forex strategy with performance that is just too good?

  #1 (permalink)
Elite Member
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Futures Experience: Beginner
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Validating an automated Forex strategy with performance that is just too good?

Could I please have some advice?

Iíve got a pretty simple strategy. It is performing amazing well in back test on 1 min OHLC Forex data. The profits are pretty volatile, but it looks completely tradable.

However, Iím a little concerned. It is a little too profitable if you know what I mean. Iíve got some posts in OpenQuantís to determine the best way to get some order book data into the database so I test it with 1 min signals, but executing on tick or order book data thereby crossing the bid / ask every time it trades (see here: SmartQuant Discussion • View topic - Forex tick data into OQ). But Iím told that IQFeed doesnít support order book data (historical) for Forex (SmartQuant Discussion • View topic - New IQFeed plug-in).

Iíve started to live test it into a OpenQuantís but Iíve had some issues with crashes and disconnects. Iíll continue to test it demo to validate somewhat.

I think I can chop the performance in half straight away if I look at slippage and bid / ask spread. Even with that we are still looking at very good returns, but again a little too good; for such a simple strategy I wouldnít expect this level of performance.

Iíd greatly appreciate if I could have I could have some other ideas on how to validate if Iím looking at a backtest artefact here or if Iím actually onto something.

Thanks and regards,

drolles

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  #3 (permalink)
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I don't know anything about OpenQuant, but there are a million and one 'gotchas' of automated trading.

I don't have hours to write a lengthy post, so suffice it to say always forward test the strategy in a live market before trading it cash. Spend time on finding a good way to simulate forward tested trades. If your platform doesn't support this, find one that does.

Backtesting is more or less worthless the way most people try and use it.

Mike

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