backtesting is stupid

Remember when Dr. Deco wrote this on page 6?

We are observing the Dunning-Kruger effect at work.
http://www.elitetrader.com/vb/showthread.php?s=&postid=2898687#post2898687

Well here's what that means. I suggest you think about it.

The Dunning–Kruger effect is a cognitive bias in which an unskilled person makes poor decisions and reaches erroneous conclusions, but their incompetence denies them the metacognitive ability to realize their mistakes.
http://en.wikipedia.org/wiki/Dunning–Kruger_effect
Quote from jonp:

i would rather wing it. not to get back into it but to be honest i'm still not entirely convinced that formal backtesting produces any edge or provides any form of clarity.
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Quote from alfobs:

IMHO, backtesting is the only way to get at least some confidence in a system before you start using it. So backtesting cannot be stupid for this simple reason. In fact a deep backtesting (with sufficient amount of data) can cover most of the market moves to prove a system on robustness, and therefore to take care of those cases in future. If somebody failed with trading after backtesting then it happened because of over fitting and lack of variety of market conditions in the historical data. Less indicators, some sound logic behind your algorithm (which must be no more complicated than should), implemented money and risk management will help to make backtesting valid. For instance my one year backtesting of 15 min bars have supported me for last 6 month without any significant deviation from backtest performance results. Also in my opinion forward testing does not have any advantage over properly organized backtesting process.
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Blofas, that was most elegantly put. Truth can be expressed so much more succinctly than bullshit. I am moved to offer the OP my out-of-print copy of Babcock for a mere grand, US.
 
If backtesting did consistently produce market beating returns,everyone would be billionaires, just compounding their money day after day. the truth is its all about fundamental analysis/general market confidence and perception.backtest lotto results and try to find a pattern...buy a trading strategy book, which in itself is an oxymoron for if the strategy was truly profitable it would never be published.when people make money they thank their amazing psychic indicators, when they lose they blame themselves for not following through with the plan.
 
Quote from jonp:

If backtesting did consistently produce market beating returns,everyone would be billionaires, just compounding their money day after day. the truth is its all about fundamental analysis/general market confidence and perception.backtest lotto results and try to find a pattern...buy a trading strategy book, which in itself is an oxymoron for if the strategy was truly profitable it would never be published.when people make money they thank their amazing psychic indicators, when they lose they blame themselves for not following through with the plan.
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Will someone please answer this post the way I would? I am too busy reoptimizing a consistently profitable strategy to reply discourteously.
 
Quote from Arthur Deco:

Will someone please answer this post the way I would? I am too busy reoptimizing a consistently profitable strategy to reply discourteously.
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I'll give it a shot.

jonp:

noobs who don't know enough => bad results

people who blindly apply the 'optimize' button, and 99% of people who write books => bad backtesting => bad results

people who have studied and understand robust, reliable methods => good backtesting => good results
 
Truth to tell, DT, if you send a fool down the backtesting path, he will be a dumber trader than if he traded intuitively. So not to worry in this case.
 
Backtesting doesn't "consistently produce market beating returns." WHEN DONE CORRECTLY, what it does is help one identify what might work going forward, out of tons of garbage that probably won't.

But those who know how to backtest properly are as rare as those who can trade profitably so most of the criticism comes from incompetents. Just because you can't pitch a 100 MPH fastball doesn't mean it can't be done.
Quote from jonp:

If backtesting did consistently produce market beating returns,everyone would be billionaires, just compounding their money day after day. the truth is its all about fundamental analysis/general market confidence and perception.backtest lotto results and try to find a pattern...buy a trading strategy book, which in itself is an oxymoron for if the strategy was truly profitable it would never be published.when people make money they thank their amazing psychic indicators, when they lose they blame themselves for not following through with the plan.
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YW. Speaking of divinity, did you see my revised Jack/Moses photoshop (with glider head) before they deleted it in the "The Documents by Jack Hershey" thread?
Quote from Arthur Deco:

18, thank you for addressing me properly. I don't get much respect hereabouts for my divinity degree.
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