Strategy Results Poor in 2001-2002

Hi Guys,

I have tested a strategy from 2001-2012. The problem is, it has poor performance from 2001-2002. But from 2004 onwards it's pretty good. Now, I wanted to know whether this sort of thing is OK or not because for those 2 years, the strategy loses money on many pairs. Maybe loses on all that I tested on. Does anyone know what the reason could be, why those 2 years were bad? Was the forex market too choppy back then? Can I expect that kind of thing again? And most importantly, would you still trade the strategy knowing it tested well on 9 out of 12 years?

Thanks!

The most important thing to understand is that a backtest will never give you the same result as live trading.

Many reasons: spread, news events, market conditions, history datas, etc ... So you can't decide to go live based on backtests results.

backtesting is a complicated science.especially if your system has aspects of discretion.

you should foward test the system for six months to see if its still viable.

What TF do you backtest? Are you using long period indicators?
If you use say a 200 period SMA or a pSAR on daily these indi cannot yet provide acurate data.

What is the conceptual basis for your trading (Is it based on daily charts, 15 min charts, indicators, candlesticks)?

How far out from the 'normal' results where the first 2 years? (Within a standard deviation of the average?)

If you know your system you should have a good idea what it depends on (Trends, volatility, choppiness, bands). Visually inspect the period and see what is different about it? What often happens on the trades during that period that is different to other times?

With these answers you will have a better idea about what sort of market to watch out for in the future.

Look into your system, to see what is the problem in bad year, and why your system could perform good result in other year. Then you would know will it happens again in future if you can avoid it.

Backtesting could be accurate as well as in future LIVE trading, depend on what is your system based on. If your system is based on certain pattern, it will happen again in future, so you will get green pips when you are in right track.