Backtesting for Futures.

C

Craig66

When I develop a strategy for Forex, I pick and instrument (e.g. EUR/USD) and an interval (say, last year), I then data mine this interval for something profitable.

How would this work for Futures? with Futures you have multiple contracts with different expiry dates, how would one develop a strategy on this data? how do you pick the dataset(s)?
 
Standard practice is to use a continuous contract that has been adjusted using one of several well known methods: forward, backward, etc.

This results in a price series that reflects (more or less) the movements of the particular contract, however the exact values of the price series are incorrect.

Louis
 
Craig66,

Watch out!. Even though for long term trading you have to use some form of continuous contracts, there are lots of potential pitfalls and gotchas using them. For example,

1. you can't take a ratio (i.e. price[t]/price[t-100]) using absolute adjusted contracts.

2.Depending on the technique you use to back adjust, you may get negative prices

3.If you use backward adjusting, all your historical prices will change every time you have a new front month contract. This may cause you to get different backtest results using the exact same trading strategy

Aside from the great suggestions lrm made, CSIdata.com has a good discussion of some of these issues. Thomas Stridsmans 'Trading Systems That Work' also has a good explain

Goodluck

David
 
Thank you to everybody for the pointers.
In light of all this what are the advantages of automated futures trading given all the pitfalls associated with the back testing of systems?
 
Liquidity, leverage, and regulation. You can get the first two from most spot forex firms, but you don't get the regulation. These instruments are all traded on regulated exchanges, with published volume, open interest, etc.

There may be more, but this is what comes to mind. Also, with futures you can gain exposure to different asset classes: equities (various index futures), commodities, currencies, and interest rates.

Louis
 
Continous contracts certainly help but I've also often overwritten my futures models with cash models. The historic cash data is easier to obtain and no need for a continous contract. Look at Yahoo for archival prices on QQQ, .DJI, SPX, or other cash indicies. You can also do the same for FX...get fx cash prices on JPY to trade 6J. Models buildt this way won't help much for scalping but are effective for swing / postion trading.
 
You must log in or register to reply here.
Back
Top