I am currently trading my BTC strategy that I have back tested on the 4h for 2019. So far it is doing good and I am happy with it. Trading a small amount. I am now testing another strategy for the 8h on forex, indicies and bonds. I get between 45-65% strike rate and a 2.5-3 to 1 R/R. My question is, if I backtest my algo(manual) on all bonds, indicies and top 10 forex pairs on Oanda over 5 years. Can I trust the average strike rate and R/R over all these tests to be somewhat representative of what I will get from the market? As I have seen my algo does bad in chop, and thats why I plan on using it with different assests. Maybe I'll get 3 months of crap on the nikkei225, but a good trend on USD/JPY for instance. From the tests I have done so far, it seams that getting around 50% strike rate and a R/R of 2.5 is pretty easy on high time frame. But thats just paper backtesting, so it all might be an illusion. Does that make sense to you guys or am I just wrapping myself in a false sense of security?
you sound ready. trust your stats? no, you can not trust anybody but me. use your stats? maybe. determine your threshold for pain, your trading plan, your goal, and decide whether to sim trade it or dive into the game and find out for sure if you can even control yourself enough to implement the system that may or may not work. if you can, right off the bat, you are def top ten. wouldn't be puttin it on the visa tho. ymmv.
Past performance is not indicative of future results. Futures trading carries substantial risk of loss and is not appropriate for all investors.
I have idea for you. You make a backtest, then you adjust parameters to get better results, then do it again, adjust again do it many times, many many times (like dozens of dreamers, you have many of them here too) and then throw it into trash, because it's irrelevant and it doesn't mean anything... 1. Past is past. Period. 2. Why ppl think that the best strategy is that one with loooong good backtest. No. The best strategy is fresh strategy that starts "eating up" now. There is bigger chance that it will life longer. And you will exploit it for longer time. 3. If you want to really test it - do it in real time. On sim or some small capital but real time. 4. You need to check what is the influence of slippage or anything like that. 5. What about risk - can it stand any swans ? Or is it secured anyhow ? 6. Is it fully automated or not ? If it's not - you need to check if you are able to trade it. What I mean is dealing with your emotions. 7. Of course it's good to have statistics about the market you trade, it's even very good. But statistics that you can use now and in future, not only what was best some time ago or how it worked some time ago. 8. Does it mean you can't do anything robust using backtest ? Of course you can, but you need to think about current market behavior and you can't expect it to work like in that backtest. Have you though, why you can find so many robots/strategies for sale in internet ? Fantastic backtest, fantastic results, pay me only 50 usd and you can get it too. My strategie is so good and produce so much money (based on backtest etc.) that I sell it 50 usd/ person. So wrapping it up - test it in real time first.
Thanks everyone for your replies. I understand that the past is the past and that it would be better to forward test it. But since I am using the 8h, by the time I am done with the forward testing I'll be dealing with old data anyways. Lets say that I started the process last March. Was the corona-induced swings and volatility typical? I don't think so. Take a chart from 2003, compare it to a chart from 2015, whats the difference? One has more chop, the other has better trend. At the end of the day we never know how next year will play out on that front. What matters is to be ready to capitalize on trend. The logic is this ; market are either in a consolidation or a trend. I build a system to catch the trend and capitalize on it as much as I can. I also try to filter my signals so I don't take too much of a beating during the chop. As long as I am right half the time and as long as I am making at least twice as much on average on my winner then I am good. No holy grail, just a systematic trading approach which relies 100% on R/R and consistency. I have no problem doing that with my BTC strat and I risk 6% per trade. I play with very little which is very helpful as well. I just understand the numbers and having a clear system makes it 1000 times easier.
MichalTr, Just to make sure I perfectly understand you, you are stating there is no need to back test a trading strategy/idea/method over say 100 to 200 trades, right? Just started trading a trading idea with real cash in real time? Please correct me if I am wrong.
You picked very little from my answer. I recommend you to re-read the post. No, that's not what I wrote. I wrote, that backtesting means nothing unless you test it live. By live I don't mean that you need to put money at risk here and now, you can first paper trade it (but if you do it this way you need to be aware what can influence that strategy when you go live). Backtesting can give you some information if you know what to look for. But information that most ppl want from that, so their R:R, % etc. - it's irrelevant. You would better get from it some information about risk, potential position sizing etc. And yes - you can trade some idea without backtesting it. The best test is to test it in action. Do you need to do it risking money ? If you can't do it that way - no you don't need. You would be surprised how many really good traders don't make any backtesting. You would be surprised how many of them averaging, don't have journals etc. etc. All the sins that you can find in all smart trading books or in any sources.
And to avoid further misunderstanding of my posts. "You would be surprised how many really good traders don't make any backtesting. You would be surprised how many of them averaging, don't have journals etc. etc. All the sins that you can find in all smart trading books or in any sources." When I say they don't do backtests, I mean thet don't do backtests. It doesn't mean they don't know their markets statistics. In fact it's the opposite. They know it very well.
Hello MichalTr, Thanks for the clarification. I understand what you mean now. How do really good traders become good traders without keeping journals or backtesting? Maybe they have lots of experience.