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I recently starting learning to program and test automated trading systems in NinjaTrader. I am using the free historical data that comes with the platform for back testing.
My trading strategy I try to develop are usually with R:R>2. I do not develop scalping systems cause I have notice lack of intrabar granularity (incorrect price movement in the small time chart bars) can lead to incorrect profit or loss of the trade.
May I please have your honest and recommended opinion/advice to the following concern:
Questions:
1. How did you gain confidence, reliability and consistence in the backtesting historical data from your platform? Currently, I am developing intra days strategies (all positions closed by end of market session) and rely on platform free historical data to provide accurate back test results for strategies from the 3 min to 1 hour chart.
2. Do your purchase your own data feed for back testing or use your platform free historical data?
My Plan for back/live testing consistency analysis. reliability and accuracy:
1. Choose a range (1-4 months) from the back test a strategy where there was lots of shorts and long trades, equally. About 100-200 trades. Document each trade.
2. Market Replay the range in step 1. Document each trade.
3. Manual Back test the range from step 1. Document each trade.
4. Compare each documented trades from the previous steps for accurate.
In conclusion, I hope for 90-100% accuracy between each documented performance. Likely, step 2 and 3 should be very similar.
What did you do to gain confidence that every time you click "back test", you had some belief in the performance report?
Please share your comments or thoughts.
Thanks
Can you help answer these questions from other members on NexusFi?
For data, I recommend Kinetick or IQFEED Data for Ninja or try Tradestation. The best thing is to watch the forward performance after you develop your strategy or paper trade it.
Don't make things too difficult. You can also shelve a strategy for a few months (mark where the backtest ends) and come back a few weeks or months later and see if it continued to do well. Kevin Davey refers to this as "incubation" and it is more useful if you develop more strategies because many will break down and so you don't have to invest too much into them.
As for belief, your best bet is to focus on the rationale behind the strategy. If you know the rationale behind your strategy, versus a random collection of indicators, you will have more confidence. Epistemology deals with knowledge. The highest form of knowledge is backed by a rational model. True mathematical model knowledge is beyond most system developers and traders. The secondary form of knowledge is empirical (seeing is believing) which can be supplemented by narrative belief structure.
As for confidence, again you should focus a lot on market cognition. It is possible to generate 50 to 100 original ideas per day. A discretionary trader makes use of these real-time insights to form speculations. So, you want to focus on market cognition as your basis for generating ideas. As an example, I noticed the other day the spread between the NQ and ES was quite wide. This gave me the basis for a trade idea that the spread would narrow. This was a real-time idea. I don't trade this spread but I placed a trade based on a speculation. I lost on that trade but it was a real-time observation.
Don't worry too much about the accuracy. Instead, just look to see if the strategy is able to make money in a realistic and acceptable way.
What might be a good plan for you is to trade on the simulator for the first 2-4 hours of each day, i.e. discretionary, and then move to backtesting or testing your ideas for the rest of the day.
Whatever the strategy, be sure to pick a platform that supports it. If you are manually backtesting, there are add-ons for Ninja Trader to provide all data for any time frame. TOS has 'On Demand' that spans to a few years back (included in the platform). Other platforms may or may not employ this feature.
Many traders question backtesting - the market may or may not be similar to what it was a month or year ago, but current numbers are key. Backtesting is sometimes used in advertisments of Trading Education and Trading Rooms. Obviously, the results can be tweaked by the date ranges used and the financial climate on any particular day or time frame - just look at Election Day, for example! That is why advertisements for GREAT PROFITS, backed up by backtesting, should be not be given much credence.
Good luck with your backtesting - hopefully it will help you in some way.
You could try manually trading your system with small position sizes or sim. Then run your automated system over the same time period and observe what if any difference exists.
