Back testing...is it a waste of time?

Hi there,

I listened to a webinar today on back testing!

I am still confused as to how it is done!

Is it a tool of importance for a trader? Should I invest my time in it?

Any advice greatly appreciated.

Thanks in advance.

Hey its ok i found some info on it at the bottom of the page!

But if u still would like to comment feel free.

Thanks in advane.

Backtesting is very important but that's just one of the bricks necessary for a solid trading system.

http://www.forexfactory.com/showthread.php?t=60849

I don't think that backtesting is a waste of time.
This market is highly based on psychological aspects
Look for all the basic truths about supports becoming resistances and vice versa.

1. Create your system on paper.

2. Examine a chart and see where you would have executed trades.

3. Drag the chart back a few months or years in time.

4. Slowly drag the chart, one candle at a time (F12 in MetaTrader 4) and log your trades in an Excel document.

5. Determine if your system is profitable and if you have the emotional control to trade this system.

6. Open a demo account and try this in real-time. The transition will be difficult at first, but it will pay off.

7. Open a small account with money that, should you lose it, you will not be hurt. Trade until you are consistently profitable.

8. Open a larger account which could potentially provide for you. Trade and consistently take a percentage of your profits to feed your family and a percentage to grow your account.

Thanks for the great advice.

I prefer the simulator, as it will also show you if the indi's you've chosen to trade with repaint or not, but don't think most MTF indis work as well in back test.

Tell you the truth I've never backtested anything in my life, one reason is I trade price action which cant be backtested, looking for the little clues for future direction, but what I will do is forward test in real time.... maybe backtesting might have saved me a few years of pain, who knows...

headfake, why can't price action be backtested?

Can you give some examples?

Is back testing a waste of time? Well what other option have you got? You either back test it, or you do no testing whatsoever. Doesn't take a genius to see which option is worst.

I'll try, one reason is when your following the price , your actually reading the flow so that means open and closes of bars on your tf mean nothing, its whats happening to the price which is important and at which levels... Also,for ex what the books say is a weak bar can also be strength depending on the situation, in price and time..

I'm not refering to ma's or cci or anything like that btw, pure price action.

Dont get me wrong though, I'm only saying I havent, but for a newbie it would be a good exercise to test a method ma's and all... and try and stick to trading that method only, you would'nt believe how many fail in even sticking to a method

I spent years doing it and it was a waste of valuable time. None of the techniques that were developed via backtesting worked going forward. I ended up with three years and 24 pages of code in the bin. To be profitable requires constant evaluation of all information currently available + excellent mindset. These things cannot be backtested. Much more usefull is a small account with even smaller position sizing and keep pluging away until you finally figure out how to stop losing. It will still take a while but at least you are not completely wasting your time

Ah yes, spent a lot of time developing EAs, I stopped when I designed one that was indeed quite simple and showed a profit over about 10 years with a most amazingly smooth profit line, I think from something like 2000 to 2008 and then all of a sudden starts loosing money hand over fist, that is why I would never run an EA.

hi i am new to developing ea.
and i am looking for a good backtesting system
are all strategy tester the same?
i'm using mt4 btw.
thanks!

hi,

i also agree that backtesting is a very important tool for traders, but i also think that we cannot simlplify it that we let a backtest run from 2000 until 2010 and than look at the results

the external inputs for the eas must be optimized for the market conditions,
therefore is the optimization option in some trading programs available

how often these inputs must be changed is depending on the strategy used by the ea, some eas must be optimized every week, but some only once a month

backtesting can also be used to find bugs in the ea, eg.: you let the ea run on a demo account one week long, than backtest the ea on the same period and compare the results

cheers
-ba

Back testing will let you practice on identifying trade signals with the system you are applying. It will tell you whether the system has been profitable historically. However, don't ignore one very important brick in the game here: yourself. Going from back testing to demo testing on live price quotes you may discover that the system you back tested may not perform as well now as it did historically. When you back tested you had all the time in the world to consider whether signals were present or not, but when you are facing a live fluctuating market you are pushed. This creates stress. Finally, when you go from demo testing to live testing with real money you are introduced to an additional fact, namely that the choices you make will give you real consequences.

Thus, don't either underestimate or overestimate how useful back testing is. Back testing is a great first step in trying out a new system since it lets you learn how to identify signals properly, especially when you're new to the whole technical analysis game. Ignorantly thinking that live trading and back testing are the same will come back and bite you.

I use replay daily to see where I was right and where I was wrong..

I find it too complex to code my trading approach, so I replay and use a sim trade program.

Backtesting is quite valid if done well without curve fitting. If there are too many indicators on a chart, it will be very difficult to backtest effectively.

IMHO