Value of Backtesting and Stops
- Thread starter bluedemon77
- Start date
Quote from OddTrader:
Perhaps the skills/ process of proper testing for trading methods/ systems is really an Edge.
Perhaps backtesting is just as useful for trading as it is to read on the web about snowboarding and then thinking you can do enter a snowboarding competition.
You'll have a real edge after you have researched it properly.
This debate is getting silly.
Would you ever trade a strategy that didn't make money in backtesting?
Would you ever trade a strategy that didn't make money in backtesting?
okay....it seems we have come to some kind of consensus that "the skill of backtesting" is important. For me, any backtesting requires that i set up rules for my test (even if its an intuitive not mechanical/computer test). Then once the entry rules are set, then I define exit(and/or) money mangement rules.
Alas...what have I done? I have specifically defined a trading system.
The lack of definintion and following rules is what kills most traders. (not a lack of a formal backtest). Because, if they follow rules and develop managment skills, they won't get killed. As they are trading and not getting killed, they have the confidence to develop better skill, and that leads to profitability.
This is the most important component of a backtest. The poster who said his backtest is 99% guaranteed to work in the future, that could be true (did i just win the lottery?) . But I think there is really no way to prove it, unless he traded all 100% of his 99% accurate systems, in real time, with real money. And what are the odds of that? I smell hyperbole here.
There is no substitute for trading a method in real time, and making adjustments that allow that method to pull money from the market on a consistent basis, in my opinion, of course.
Alas...what have I done? I have specifically defined a trading system.
The lack of definintion and following rules is what kills most traders. (not a lack of a formal backtest). Because, if they follow rules and develop managment skills, they won't get killed. As they are trading and not getting killed, they have the confidence to develop better skill, and that leads to profitability.
This is the most important component of a backtest. The poster who said his backtest is 99% guaranteed to work in the future, that could be true (did i just win the lottery?) . But I think there is really no way to prove it, unless he traded all 100% of his 99% accurate systems, in real time, with real money. And what are the odds of that? I smell hyperbole here.
There is no substitute for trading a method in real time, and making adjustments that allow that method to pull money from the market on a consistent basis, in my opinion, of course.
Yes I agree its silly. Can't we all just get along? Well hopefully people get a better perspective on the value of testing. I used to believe in a lot of testing, but what i though is, that was when I was really "new" after I had lost money without a well defined system.
I was trained in risk arb, where my manager did intuitive test because I guess we didn't know how or couldn't do a mechanical test. We made six figures for a number of years trading merger deals. That's not a lot, but that was my 2nd through 5th year trading.
I then met one of the best trend traders of all time, who is an excellent computer programmer and espoused the virtues of backtesting and system following...only to say there are sometimes when one shouldn't follow the rules.
I guess I decided that trading is the best way for me to know if my system works. There is no Holy Grail in trading, and I think that was my initial reaction to the backtesting mantra.
What I conclude is that some traders discover backtesting and believe with certainty that a successful test guarantees profits. Is it fair to say it does not? I became successful when I put less time into testing and more time into learning how to manage my own trading.
I am wrong quite a bit with my trades, I bat about .333. But I lose .06 roughly per 100 shares on each wrong trade, which in my timeframe is a very tight stop. I add to my winning positions (scale in). And take profits when I feel the tide in my trade turning.
For me, it was either too hard or I was too lazy to test that strategy. But I did it intuitively, and it works in real time to the degree that I do it each time.
I would almost say flip a coin for my entry and I can guarantee a profit, but even though I value simplicity, my entries have a few more conditions than that. But not many.
Quote from OddTrader:
Perhaps the skills/ process of proper testing for trading methods/ systems is really an Edge.
Obviously I said Testing, rather than Backtesting, didn't I?
PS: Perhaps trading simply is all about details.
PPS: An improper testing would even discard a truly profitable method/ system with real edges.
Not if you do it right, which few people do.
Backtest using old charts in order to develop a tentative but consistently profitable strategy.
Forward-test also using old charts in order to determine whether the signals pan out going forward bar by bar through unfamiliar charts and consistent profitability is maintained.
If everything is a go, then paper-trade it in real time, again to determine if the signals and the profitability hold up.
If everything is still a go, then trade it in real time with real money but small lots, then increase size gradually.
And if at any point it all begins to fall apart, then go back as far as you have to and start again.
Either that, or just throw money at the market and hope for the best.
LC
Listen little kid, you obviously dont know crap about true 100% auto trading, or all those scray little problems you listed wouldnt be problems at all.
My systems run live day in and day out, and dont have any issue with "real markets". (rolling eyes).
I guess you just sucked at development systems that worked in real markets. So speak for yourself and not for others.
Yeah yeah, you run circles around us, sure you do, keep telling yourself that.
Now go back to your playstation and pretend youre a trader that knows how to develop rea live systems. Oh wait, you already admitted you cant, LMAO.
Those damn automated order flow analysis systems make your pathetic systems fall to pieces, hahahhahaha.
My systems run live day in and day out, and dont have any issue with "real markets". (rolling eyes).
I guess you just sucked at development systems that worked in real markets. So speak for yourself and not for others.
Yeah yeah, you run circles around us, sure you do, keep telling yourself that.
Now go back to your playstation and pretend youre a trader that knows how to develop rea live systems. Oh wait, you already admitted you cant, LMAO.
Those damn automated order flow analysis systems make your pathetic systems fall to pieces, hahahhahaha.
This is why I hate the term "backtest". I rather just say "simulation". When I say "backtest", I actually mean the entire suite of tests I use to validate a strategy, not strictly a simple backtest.
So I agree with you, you gotta forward test, and do a lot more than that too.
So I agree with you, you gotta forward test, and do a lot more than that too.