JonnyBoy 

I agree. I believe back testing has a place, but very few profitable back tested strategies are ever profitable walking forward

If you backtest incorrectly, I 100% agree.
If you backtest correctly, though, your odds of future proftability go way up (but still no guarantee of success)

JonnyBoy 

and if you bring exotic bar types into the equation...forget about it.

100% agree. I have never seen an exotic bar type backtest perform the same in real time.


Nice post!

I am a novice when it comes to back testing. Can you explain in detail how to back test "correctly" and if you can please provide examples of correct and incorrect back testing so that the struggling trader that asked this question will be well informed. Thx

jmh13 

I am a novice when it comes to back testing. Can you explain in detail how to back test "correctly" and if you can please provide examples of correct and incorrect back testing so that the struggling trader that asked this question will be well informed. Thx

To adequately address "how to backtest" would easily fill a book, and in fact there are some very good books written on the subject by Pardo, Tomasini and others.

I have been a guest for about a dozen webinars here over the years, which you can find in the Elite section. I discuss backtesting a great deal in them. That is a good place to start.

cleanlogic 

Exactly, there are many pitfalls in backtesting. Creating a profitable system using backtesting on price series is very difficult and can only be done by those who really know what they are doing. Many people will show you incredible backtest performance but it doesn't mean the strategy will work live.

So many "backtests" on the same instrument can give most different results and thus leading to very WRONG decisions. One example - be it on a 30m intraday decision trade here - you can backtest last 3 days, 3 months or 9 months or 10 years...
What will be the given decisions by those four backtests? You can imagine: at least even 4 or more but for nearly sure you get more "high possibilities" by any different backtest time period.

To make it clear: backtests do NOT give any hint for the future because of so many influences given by the markets, news and all other traders realtime conditions.

Be aware. GFIs1

GFIs1 

To make it clear: backtests do NOT give any hint for the future because of so many influences given by the markets, news and all other traders realtime conditions.

I won't clutter this thread debating your contention above (which my experience says is not true), but since you do not use backtests, how do you prove you have a strategy that has an edge? Testing in real time would seem to be very time and money consuming before you statistically know you have an edge.

I'm curious about your approach to this.

Thanks!

kevinkdog 

If you backtest incorrectly, I 100% agree. If you backtest correctly, though, your odds of future proftability go way up (but still no guarantee of success) 100% agree. I have never seen an exotic bar type backtest perform the same in real time. Nice post!

Is a tick chart considered an exotic bar type?

trendisyourfriend 

Is a tick chart considered an exotic bar type?

Good question. When I say exotic I am referring to Kase, Renko, Point and Figure, etc. I have found backtests with those suspect.

I also don't test with tick charts, partly because there is usually a limited amount of data available, and partly because what looks in backtest doesn't translate to real time (speed of tick charts can play a role).

Oliver... Early in this thread someone asked for more specifics and you have yet to provide any. What instruments are you trading and what time frames are you looking at for your analysis? It is possible there is a trader here who is doing what you are but enjoying success. That person is the one who can help you the most and may have suggestions that might turn your situation around. You've given very generalized descriptions of your efforts and not surprisingly all the responses you are getting are very generalized and generic. If you want substantive comments people need something of substance to respond to. The most helpful comments will come if you post charts that explain how you arrived at your decisions and shows the trades that you made. Until then, most people won't really understand what you are talking about and won't be able to help you.

glennts 

Oliver... Early in this thread someone asked for more specifics and you have yet to provide any. What instruments are you trading and what time frames are you looking at for your analysis? It is possible there is a trader here who is doing what you are but enjoying success. That person is the one who can help you the most and may have suggestions that might turn your situation around. You've given very generalized descriptions of your efforts and not surprisingly all the responses you are getting are very generalized and generic. If you want substantive comments people need something of substance to respond to. The most helpful comments will come if you post charts that explain how you arrived at your decisions and shows the trades that you made. Until then, most people won't really understand what you are talking about and won't be able to help you.

You are absolutely 100% right on. Show examples and be as specific as possible. Telling someone to buy books and webinars is futile.

Take a look at the Thread here Targets Trading Pro BOT you will see traders posting charts and examples.