What is Backtesting?
As the omniscient Wikipedia puts it, “Backtesting is a process, usually performed with aid of computers, by which traders try to estimate how financial instruments would have performed in the past had a particular mechanical trading system been employed to trade them.” Sounds perfectly legitimate, but it isn’t. Backtesting is by definition performed on a finite set of data. That could be anything, but usually it’s a set of price series. Therefore, no matter how much or how long you backtest your forex trading strategy, the only result that you can get is that it behaves in a certain way in SOME circumstances – precisely, those that were used for the test. It remains completely unknown how it behaves in ALL OTHER circumstances, i.e. untested – and that includes the future. No method of backtesting, regardless of its complexity and involved precautions, can work around this. No amount of backtesting can predict the future behavior of a forex trading strategy in real life. So what is back
Backtesting is essentially the testing of a trading system using historical market prices, to see how profitable that system can be. This testing is usually done with computer software that runs the trading system through a period of time in the past. Why beware of backtesting? Many new traders think that good backtesting results will guarantee similar results in the future. This is a big mistake because a system that has worked in the past may not necessarily work in the future. And this is because the Forex market is always changing and evolving. The Forex market today can be very different from the Forex market last year. The past does not equal the future if it did, wed all be millionaires by now! What about trading systems with good backtesting results? Because everyone knows what has happened in the past, its easy for anyone to create a trading system that can be very profitable during that time (in the past). But remember: were not trading in the past; were trading in expectatio
Backtesting your trading system can be a good idea to determine the strengths and weaknesses of your system. It is a very important tool you must use to create a working system. var infolink_pid = 9198; var infolink_link_color = ‘009900’; var infolink_title_color = ‘252667’; var infolink_text_color = ‘000000’; var infolink_ad_link_color = ‘24951E’; var infolink_ad_effect_type = 0; var infolink_pid = 9198; Search Stocks Simplified Trading has so much to do with psychology. That is why I recommend The Buddhist Trader for anyone looking to increase their trading performance. Does Finding Stocks On The Net With A Greater Than 90% Chance Of Going Up Near Term with 3 simple rules excite you? Get your free trial of The $17 Stock Trading System Jessie Livermore was the most successful trader who ever lived. Learning How He Traded can help you out a great deal. Know When To Buy and When to Sell With this free Weekly Newsletter, available only at WallStreetWindow.Com This strategy is basically t
Backtesting is a way of seeing how good or bad a stock picking strategy would have done in the past by calculating how profitable its stock picks would have performed. In other words, does your screen generally find stocks that go up once they’ve been identified, or does your screen generally find stocks that go down once they’ve been identified? This is important information to know before you invest. And by knowing how successful your stock picking strategy has performed in the past, you’ll have a better idea as to what your probability of success will be now and in the future.
