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Analyzing backtest results

  • #1
  • First Post: Oct 23, 2014 4:19am Oct 23, 2014 4:19am
Hi, I trade currencies and have backtesting results of one pair. Method is mechanical, but I have manually backtested it. Usually I trade from London open to close. I have a few questions.

When I did a backtest I ignored the sessions and just took every single setup, now the question is if I trade only London session will my performance will be different because I would be missing trades and not taking every single setup that method generates or maybe everything would balance out because in real life you can't physically take every setup.

My second question, if I start to trade multiple pairs, will it affect the consecutive losses number? From the results it is 5, but from Monte Carlo simulation it could be 10 with 99% confidence level. If I start trading more pairs could this number be even bigger? Thank you in advance.
  • #2
  • Oct 23, 2014 4:30am Oct 23, 2014 4:30am
If the purpose is to see if your strategy is profitable, backtesting is worthless.

Backtesting should be used only to see if a strategy (EA) is respecting the defined rules.
MT4/MT5 EAs/Indicators/Alerts coder
  • #3
  • Oct 23, 2014 4:34am Oct 23, 2014 4:34am
Quoting FerruFx
If the purpose is to see if your strategy is profitable, backtesting is worthless. Backtesting should be used only to see if a strategy (EA) is respecting the defined rules.
Let's stay on topic.
  • #4
  • Oct 24, 2014 1:39am Oct 24, 2014 1:39am
I am probably asking too difficult questions for FF community, if I talked about new indicator, there would be more interest answering, probably.
  • #5
  • Oct 24, 2014 6:02am Oct 24, 2014 6:02am
Hey 2121,

Your results will likely be different trading only the London session as the volatility during this time tends to follow specific patterns and often behaves differently than the US or Asian sessions. You'll have to forward test this and depending on your system parameters it could even be a better thing.

As for multiple pairs, it shouldn't affect the system BUT it depends (of course). Just as different trading sessions have different characteristics, so do pairs obviously. I think it'd be worth your while forward testing your system on the new pairs as you go. Once again, look for pairs that meet your systems requirements. Try to define ideal market conditions for you system and so on.

I'd stick with the one pair to begin with, test how it performs during the London session only and then, based on those results pick one other pair to test your system on. Creating a nice, structured experiment like that should do great things for your expectations and learning and should really help you see patterns in your setups.
  • #6
  • Oct 24, 2014 7:22am Oct 24, 2014 7:22am
Quoting TradeDream
Hey 2121, Your results will likely be different trading only the London session as the volatility during this time tends to follow specific patterns and often behaves differently than the US or Asian sessions. You'll have to forward test this and depending on your system parameters it could even be a better thing. As for multiple pairs, it shouldn't affect the system BUT it depends (of course). Just as different trading sessions have different characteristics, so do pairs obviously. I think it'd be worth your while forward testing your system on...
Hi TradeDream, thanks for the response. Just as I thought, I will first of all forward test it with one pair during London and if all goes well will try to add some more pairs.
  • #7
  • Oct 24, 2014 8:23pm Oct 24, 2014 8:23pm
Quoting 2121
{quote} Hi TradeDream, thanks for the response. Just as I thought, I will first of all forward test it with one pair during London and if all goes well will try to add some more pairs.
No worries 2121.

You're certainly going about it the right way. Testing over and over like you're doing is such a great way to see results. You're already far ahead of the pack.

All the best mate.
  • #8
  • Last Post: Oct 28, 2014 4:49am Oct 28, 2014 4:49am
Quoting 2121
When I did a backtest I ignored the sessions and just took every single setup, now the question is if I trade only London session will my performance will be different because I would be missing trades and not taking every single setup that method generates or maybe everything would balance out because in real life you can't physically take every setup.
In reality your results may be vastly different if your profitable trades occured in low volatility conditions -> i.e. live results will likely be worse than the backtested results. The converse is possible if your profitable trades have a bias towards higher volatility sessions.

When I used to back test, I programmed a very simple indicator to show me what sessions we were in. I would suggest perhaps doing something similar to get more accurate results.

Safe trading mate,
Lester
Follow me on twitter @FxLester
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