Back Testing

[virtuos0]

Is it worth backtesting a price action strategy? I've been looking into how to go about this after having my best ever months trading results this month(approx 16 trades per day, 55 pips profit per day), but with my total lack of programming knowledge i wouldt know where to start, but are you saying that I can save myself the time?
Most people are very pro backtesting.

'price action' is a pretty nebulous concept isn't? You're going to need to tell me what aspect of price action you're talking about. People seem to use this term for just about anything that isn't fundamental analysis.

 

[morgan_edge]

moving on from that slightly, without backtesting (which like i said ive never really done) how does one have confidence in future results?
Im suffering from this at the moment. Im slightly profitable after trading for a few years now. I trade using technical analysis, and these last few months I have been getting some nice consistency. I've attached a little graph from the results of my ES trading for the last 2 months. Its about 60 ES points (600 pips). Nothing amazing but a nice steady rise from my method. I have a similar curve from my FX trading. Every trade risks 1% of my account. Theres been no bad drawdown as you can see. Like I say this isn't some theoretical backtest, its the actual results of my live trading put into a graph in excel.

However, I keep wondering when my results will turn south again, and it constantly plays on my mind and gets me very stressed....so much so that i physically 'break out' on my skin! (im too old for acne! lol)

Is it only me that worries about things like this? Do others? It strikes me that maybe its a situation where a backtest would maybe ease my mind, but I wouldn't know how to backtest it. Without going into my method, im sure that it would be classified as technical analysys, playing chart patterns, minimal use of indicators.

(I'd especially like input on this from people like Kitejedi, Dinos, Gamma, Candles, TraderTom. These are people who I have little doubt are making money from the market, yet they dont seem to be facing the same 'demons' as me, in terms of worrying about whether their success will continue!

thanks

 

[oildaytrader]

specific type of market behaviour that happened in the past and that produced a 50% strike rate , will always produce that strike rate of 50% approximately in the future.
In the absence of fundamental drivers or anomaly , the results will be less profitable and the strike rate will be lower, it will be there in a lower percentage of say 35 to 40 %.In those cases most trends would fizzle out, and overall profitability will be very low or possibly losses.

Only if you people knew this market behaviour , they would stop arguing against back testing.

 

[virtuos0]

moving on from that slightly, without backtesting (which like i said ive never really done) how does one have confidence in future results?
Im suffering from this at the moment. Im slightly profitable after trading for a few years now. I trade using technical analysis, and these last few months I have been getting some nice consistency. I've attached a little graph from the results of my ES trading for the last 2 months. Its about 60 ES points (600 pips). Nothing amazing but a nice steady rise from my method. I have a similar curve from my FX trading. Every trade risks 1% of my account. Theres been no bad drawdown as you can see. Like I say this isn't some theoretical backtest, its the actual results of my live trading put into a graph in excel.

However, I keep wondering when my results will turn south again, and it constantly plays on my mind and gets me very stressed....so much so that i physically 'break out' on my skin! (im too old for acne! lol)

Is it only me that worries about things like this? Do others? It strikes me that maybe its a situation where a backtest would maybe ease my mind, but I wouldn't know how to backtest it. Without going into my method, im sure that it would be classified as technical analysys, playing chart patterns, minimal use of indicators.

(I'd especially like input on this from people like Kitejedi, Dinos, Gamma, Candles, TraderTom. These are people who I have little doubt are making money from the market, yet they dont seem to be facing the same 'demons' as me, in terms of worrying about whether their success will continue!

thanks

In my case I can have confidence in what I do for two reasons.

Firstly, it has now worked for 7 years. The further you go down the road the less likely it is that it can be attributable to luck. Not only that but my returns are fairly consistent, which suggests that there is skill there. If it were luck I would have more severe drawdowns. 2 months of results are nowhere near enough to draw any conclusions.

Secondly, what I do is based on a clearly defined phenomenon that occurs in the market, and I do mean IN the market, I don't mean on a chart. If you are unable to explain why your 'edge' works then what you have is probably ephemeral.

As I know almost nothing about you or your trading, these are questions you need to do some soul searcing to answer. Is what you do a result of superior skill, superior information, or superior analysis of that information? If it isnt one of those three then you probably have nothing.

 

[Paul71]

Fractals, triangles, distribution, sup/res, double bottom, cats ears, batman, pinbars, inside bars, accumulation, flags, head and shoulders, etc etc....all these terms are actions of price (price action). All of these actions could actually be happening at the same time, in the same TF, each one being seen by an individual trader (retailer), all trading the same market. In fact, one trader, can/could see all these actions happening at the same time.

Back testing price action isn't worth the effort, and if indicators are born of price action...?

 

[morgan_edge]

(I'd especially like input on this from people like Kitejedi, Dinos, Gamma, Candles, TraderTom. These are people who I have little doubt are making money from the market, yet they dont seem to be facing the same 'demons' as me, in terms of worrying about whether their success will continue!

This still stands, although I didn't actually mean 'traderTom'. I meant 'traderDante'. They trade successfully using charts, and recently there's been lots of threads based around how 'charts dont work' and any positive results are pretty much just temporary luck. I always want these posters to join such threads but they never do!

In my case I can have confidence in what I do for two reasons.

Firstly, it has now worked for 7 years. The further you go down the road the less likely it is that it can be attributable to luck. Not only that but my returns are fairly consistent, which suggests that there is skill there. If it were luck I would have more severe drawdowns. 2 months of results are nowhere near enough to draw any conclusions.

Secondly, what I do is based on a clearly defined phenomenon that occurs in the market, and I do mean IN the market, I don't mean on a chart. If you are unable to explain why your 'edge' works then what you have is probably ephemeral.

As I know almost nothing about you or your trading, these are questions you need to do some soul searcing to answer. Is what you do a result of superior skill, superior information, or superior analysis of that information? If it isnt one of those three then you probably have nothing.

I know 2 months isn't long, although I've been profitable for 4 years now. Just that this latest run of success makes me wonder whether my skill level has further increased and whether similar gains are feasable. How much time would you say is enough to draw conclusions? I update that graph everyday. Will be interesting to post it again this time net year.

"Is what I do a result of superior skill, superior information, or superior analysis of that information?" I can only assume that maybe my skill IS superior having spent an obscene amount of time studying charts, noticing things that maybe some people haven't. I wouldn't know how to trade without charts, and after reading the 'trading without charts' thread and trying my hardest to find the answers to the 'secret' i gave up. I think certain posters were just leading people on. If there was something, it would be MUCH more widely know/talked about. Especially in this day and age.

Still, I really want to hear from those successful traders that I mentioned before.

 

[Paul71]

People without faith in themselves are always on the lookout for something to fill the gap, false hopes, dreams and idols.

 

[abottoml]

You can do free backtesting here:

http://www.prorealtime.com

It works great. You have to pay for the intra-day stuff though.

 

[IT_Finance]

Use Forex Tester it is almost free. But really great tool.

 

[Fran8]

thanks for the website to back test

 

[Shanghai]

Some scepticism regarding backtesting here I see. In my opinion no-one should ever place any money in the market unless they know that their system has a positive expectancy and backtesting is a key part of that. Backtesting relatively simple strategies only has a limited use though, mainly to test how robust a system is. For example if a system works well with a 21 days moving average but backtesting shows that it doesn't work with a 19 day or 23 day MA then it is not a robust system. Where backtesting fails is that good traders tend to know what type of system works under what market conditions and adjust their methods accordingly, or even stay out of the market completely at certain times. Incorporating this sort of variety of market conditions within strategy backtesting is definately more complicated.

Personally I will always recommend backtesting by hand, going through a chart bar by bar manually. This is the only way to gain some sort of feel for the difficult decisions that occur when trading for real. Much more time consuming of course but no-one said trading was easy.

 

[Zombi]

As a newbie just starting to build up a strategy for US stocks i'm definately going to backtest.
I feel that it is a confidence booster to see that your methods could have worked in the past and theoreticaly have a higher probability of happening in the future.

 

[Black Swan]

after having my best ever months trading results this month(approx 16 trades per day, 55 pips profit per day),

Jeez, just over 3 pip profit per trade...? Hate to see your bad months...

 

[morgan_edge]

Jeez, just over 3 pip profit per trade...? Hate to see your bad months...

lol...thanks for that!!

Nearly 3 months with this new method now and still averaging about 55 pips per day.
Isn't that what matters in the end, not how many points you average per trade after you add all of your pips together and divide them by how many trades you take?

Someone could have a system where they risk 2 pips to make 80 pips and they average 16 trades per day with 1 win and 15 losses netting them 50 pips per day, everyday. The same system would also only average around 3 pips per day if you simply add the pips gained divided by the numberof trades taken.

After commissions/spread etc I've been averaging 55 pips per day. If you are more of a 200 pips per day kind of guy with only 1 trade then fair play to you!

cheers

 

[Black Swan]

lol...thanks for that!!

Nearly 3 months with this new method now and still averaging about 55 pips per day.
Isn't that what matters in the end, not how many points you average per trade after you add all of your pips together and divide them by how many trades you take?

Someone could have a system where they risk 2 pips to make 80 pips and they average 16 trades per day with 1 win and 15 losses netting them 50 pips per day, everyday. The same system would also only average around 3 pips per day if you simply add the pips gained divided by the numberof trades taken.

After commissions/spread etc I've been averaging 55 pips per day. If you are more of a 200 pips per day kind of guy with only 1 trade then fair play to you!

cheers

can't argue wih your logic...and no I'm not 200 pips with 1 trade. more like ten.

 

[jaspertrademaster]

Right, charliechan, nothing overrides experience and a real feel for the right move.

 

[oildaytrader]

lol...thanks for that!!

Nearly 3 months with this new method now and still averaging about 55 pips per day.
Isn't that what matters in the end, not how many points you average per trade after you add all of your pips together and divide them by how many trades you take?

Someone could have a system where they risk 2 pips to make 80 pips and they average 16 trades per day with 1 win and 15 losses netting them 50 pips per day, everyday. The same system would also only average around 3 pips per day if you simply add the pips gained divided by the numberof trades taken.

After commissions/spread etc I've been averaging 55 pips per day. If you are more of a 200 pips per day kind of guy with only 1 trade then fair play to you!

cheers

Some professional traders are happy with 5 pips daily.Mediocre automated systems will make 2 pips , great automated systems will make an average of 7 pips per trade .

Your performance is great.

O D T

 

[v1per]

Hi everyone

Where can back test my strategy for free?

Thanks

HI,

I am quite good at backtesting and will be able to backtest any strategy for you with a small summary of its sucess. PLease let me know at vipg007 at hotmail.com

 

[oildaytrader]

HI,

I am quite good at backtesting and will be able to backtest any strategy for you with a small summary of its sucess. PLease let me know at vipg007 at hotmail.com

Could you backtest a dax breakout strategy?Do you have data for dax?

 

[Journals009]

With the introduction of personal computers, the science of “technical analysis” of market behavior became broadly available for the first time. At first, its primary appeal was with commodity traders in Chicago and at the stock exchange in New York.

During the past decade, the science migrated into the world of longer-term investing. It turns out that some of the techniques used effectively by commodity traders and day traders also work well when applied to longer-term market trend analysis and stock market investing. And new approaches have developed that apply strictly to longer-term investing.