After live trading our backtested systems for three months, I am pleased to see it has reflected the backtested results. However the backtesting must be as DbPhoenix describes - there are no short cuts and detailed testing must be done with win/loss ratios, profit and loss ratios, and strict risk management rules; it is a lot of work; constant review to improve and then re-test again. Correctly backtesting your strategies, following all of the rules, all of time, following your trading plan - no exceptions is really the holy grail of success. You can say with absolute certainty that going forward, the markets will never perform exactly as they did in the past and that live trading isn't exactly like testing, etc. But for the most part, this is the exception rather than the rule and should not be used as an excuse not to test.
The following user says Thank You to Lysakat for this post:
I already hit that wall few times since last year and I had to adjust exit condition, target, stop and others and has been quite stressfull.
even adjusted the size of each trade and moved to low commission to make it profitable. quite difficult process
The following user says Thank You to emini_Holy_Grail for this post:
right, due to ever changing market and we can't expect the previous 6months of move to the next 6 months,whatever the "best backtest results" may be, we can't reproduce backtest to future results, but about 50% of backtest result to future, i can
but we can test "an average" like avg trade PnL and win/loss ratio
my avg win/loss is mostly around 1.9 or so as # of wins are less but they are runners
I took 4 years to learn backtest and optimise, back and forth, doing sim and Live. quite stressful and I did at the expense of quality and healthy life
Well the best solution would be to have a fully extensible back tester that can be customized to fit your strategy. However the only way to do that would be to either program one yourself, extend one from a package (R quantstrat/ Python bt) , or buy an institutional back tester. There are no retail backtesting platforms that are fully extensible to my knowledge, that would include trade station, TOS, ninja trader, multi charts. I have gotten multi charts to about 85% fill accuracy, but it ment that I was limited to types of strategies it would do well with. Long term daily bars and using market orders. Also I had recorded the liquidity patterns in order to estimate my slippages accurately.
However here are a few tips that can help:
1) if using limit orders use 1 tick pass through for a fill, not on touch.
2) record the level 2 and determine the average bid ask spread, as well as average sizes on bid offer. This will give you better slippage and fill assumptions.
3) understand the limitations of your back tester. Try to test systems that are within the boundaries of what your tester is good at, or understand where it can be giving you over or under stated results.
4) learn how or when your live system actually runs the logic cycle. Is it at end of bar, each tick, what is the order of logic priorities.
5) Use a broker server live sim and small sized real money to compare results. Broker sim will only show gross errors as it is still a simulation. You need to use real money to find out if your slippage, latency, and executions will be in line with what you expected. Then go back and add these new adjusted numbers to your test to find more realistic result. THIS DOES NOT MEAN GO BACK AND CHANGE RULES! it only means go back and see if you were over or under estimating the results, and see what it would be like now that you have experienced real fills.
The following 2 users say Thank You to treydog999 for this post:
In regards to how the 15% of orders were. they were scattered. But about 2-4 x my estimate on slippage, i did have some really hurt though 10 x+.
I suggest you learn to make algos on any single time series like futures, stocks or FX before dealing with options based strats. They are much more complex and require a hell of a lot more software/hardware. I have a thread i started here dealing with that, basically no retail package fitted my needs. So we had to go enterprise level and build out from there.