I find when back testing it's important to test out various periods of time, you can pinpoint area's that the strategy did not perform as expected, investigate and improve the method
For example, back test month by month if using 1 hour charts, if your strategy is supposed to perform consistently... if you notice any "abnormal" months investigate to locate any flaws, either ditch the idea if the flaws are too great, or adjust it as required (be aware of "form fitting")
In regards to forward testing on a demo account:
I make sure that the strategy won't be affected by Broker related issues, delayed execution spread etc. < This applies to mainly very short term strategies, for longterm strategies these things shouldn't be an issue.
If you are using a scalping strategy you should test it out on a cent/very small live account, this will ensure that real spread and execution is used.
If not a scalping strategy demo should do just fine to get an idea of how well your strategy will hold out.
Steps:
1. Theory... pencil and piece of paper
2. Programming/Back testing to identify weaknesses in the strategy as well as possible adjustments without form fitting, ensure the method works regardless of period of time it is applied to... example, if used last month was it good? but is the performance consistant if used last year during the same month etc...
3. Try to improve the Theory (step 1), discuss theory with others to try and spot weaknesses that you may have overlooked
repeat 1-3 as needed until confident with the strategy
4. Live/Demo Account depending on the "type" of strategy
5. Compare the Live/Demo results with Back testing results, look for inconsistencies in performance, if any are found... figure out what is causing them and if they can be fixed. Back to steps 1-3 if needed until there are no inconsistencies and performance is acceptable
6. Trade using a healthy sized Live Account
7. Monitor the Account to ensure that everything is still consistent
PS. The strategy should be programmed, even if it's visual, find a way to program it regardless of how long it takes. This will eliminate human error that happens when visually backtesting data.
An Automated Strategy in my opinion = Greater Consistency
than a Human using the same method Manually
Also, automated strategies will make it very easy to find potential flaws and areas that you can improve, and by improve I don't mean form fitting, I mean trying to create a better theory that can Trade the Markets better than the 1st method
For example, back test month by month if using 1 hour charts, if your strategy is supposed to perform consistently... if you notice any "abnormal" months investigate to locate any flaws, either ditch the idea if the flaws are too great, or adjust it as required (be aware of "form fitting")
In regards to forward testing on a demo account:
I make sure that the strategy won't be affected by Broker related issues, delayed execution spread etc. < This applies to mainly very short term strategies, for longterm strategies these things shouldn't be an issue.
If you are using a scalping strategy you should test it out on a cent/very small live account, this will ensure that real spread and execution is used.
If not a scalping strategy demo should do just fine to get an idea of how well your strategy will hold out.
Steps:
1. Theory... pencil and piece of paper
2. Programming/Back testing to identify weaknesses in the strategy as well as possible adjustments without form fitting, ensure the method works regardless of period of time it is applied to... example, if used last month was it good? but is the performance consistant if used last year during the same month etc...
3. Try to improve the Theory (step 1), discuss theory with others to try and spot weaknesses that you may have overlooked
repeat 1-3 as needed until confident with the strategy
4. Live/Demo Account depending on the "type" of strategy
5. Compare the Live/Demo results with Back testing results, look for inconsistencies in performance, if any are found... figure out what is causing them and if they can be fixed. Back to steps 1-3 if needed until there are no inconsistencies and performance is acceptable
6. Trade using a healthy sized Live Account
7. Monitor the Account to ensure that everything is still consistent
PS. The strategy should be programmed, even if it's visual, find a way to program it regardless of how long it takes. This will eliminate human error that happens when visually backtesting data.
An Automated Strategy in my opinion = Greater Consistency
than a Human using the same method Manually
Also, automated strategies will make it very easy to find potential flaws and areas that you can improve, and by improve I don't mean form fitting, I mean trying to create a better theory that can Trade the Markets better than the 1st method
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