Is back testing a waste of time?
|July 20th, 2016, 04:35 PM||#11 (permalink)|
méxico df, méxico
Futures Experience: Intermediate
Platform: ninjatrader, multicharts
Broker/Data: demo so far
Favorite Futures: stocks, @nq, @es
Posts: 43 since Mar 2013
Thanks: 109 given, 21 received
in my opinion, back testing, optimization and real time simulated testing are the best tools you have available to put together an automated strategy that does make more money than it loses.
the first part of my advice to you would be that you learned how to optimize the settings for the parameters in your strategies, as it is apparent you do not know how to do that. all the most popular trading platforms offer optimization engines, learn how to use them for the particular platform you happen to be using (there are even video tutorials availble on the internet). make sure to include realistic and even exaggerated values for commissions and slippage which all will be going against you all the time.
if your strategies lose more money than they make even when all the parameters have been optimized, you can be sure they will never work and it would be a waste of time to continue trying to develop them.
second, maybe the most advantageous thing you can do to determine if your strategies are winners or not is to optimize them always leaving a sizable period of time out of sample. optimize the parameters in your strategies over long enough periods of time (4 years or more), so that, ideally, your strategies will be tested on all kinds of market conditions; uptrends, downtrends and flat / ranging periods. leaving an extended period of time out of sample means that you would never optimize your strategies to the present day and consider those results to be overly credible, always optimize up to 6 - 12 months ago. once you have optimized your strategies, let's say, to 12 months ago and they made money up to that point, and then you included the latest 12 months of market data keeping the same values for your parameters and your strategies still turned a profit consistently over that period, then you can be certain you have a winner.
the next step would be to test your strategies for a number of weeks as they make trades in real time on a simulated account. if any of your strategies makes more than it loses over all these tests (remember to always use realistic / exaggerated values for total commissions and slippage when evaluating simulated results), you can be certain that as long as the market keeps moving in fairly similar patterns as it has done in the past you could make real money going forward.
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