Hello danielc1, LOL HAHAHAHHAH, you going to start big debate on ET if algo traders read this!!! LOL HAHAHAHHAHAHAHAAHHAHA
From your opinion of backtesting, I conclude that you don't know how to make money. Backtesting is a tool for trader and has nothing to do with the fact that you are a profitable trader or not. Like hammer is a tool for carpenter and has nothing to do with the fact that you are a good carpenter or not. You might get better as more you use it (like backtesting).
Hello danielc1, I definitely respect your opinion sir. Well, I can only speak for myself when I say this: Developing a Trading Systems and back testing that trading system makes good logical business sense to me.
Hello mikeriley, Person A is a very wise and logical and good business person. And doing the right thing IMO. Question: Why would Person B want to manual take 150 trades, when a computer can back test 20 years of those same trades for nearly XXX to XX,XXX trades? Thank you,
Do you think my opinion is so far out? I think there are more hammers sold to people that do not know how to make money with a hammer, then all the carpenters combined that buy a hammer and make a living out of it. I believe it is the same with all the software vendors that sell all kind of backtesting and forward testing. Does the hammer make you a carpenter? Or is it your insights and knowledge that make you a carpenter? The same is trough for traders..
IMHO, backtesting helps to understand systems that might be profitable. Specially if you are automating a trading plan. Looking at those systems in bulk can save you a lot of time, when you are a programmer you can speed up your learning process. My background is in software development and I had zero experience in finance when I started trading. Backtesting routines gave me an understanding of what might be the path to go, but more importantly what not to do and what are the critical routes, specially about risk and funds management. I get your point that our data is not accurate and it misses the whole picture of the market, but for purely price action systems it is useful. If you are after the order book in order to understand which players moved the market, that is obviously missing in any data set as it can't be captured. I see backtesting as a way to understand what I shouldn't do instead of a way to find a winner system. I don't see how someone would test ideas if it is not through backtesting. Maybe spending countless hours in from of the tape would give you that experience, but running automated routines can definitely speed thing up. In the book "Quantitative trading" by Ernest Chan he speaks about the flaws that our data has, and he points something very similar to what you've said, so you are definitively on point on that one. The book goes on and gives really good reasons to apply a backtest to your ideas, maybe is a read that might change your mind if you are interested.
Hello rb7, I agree with you on this Back testing can be used as a tool just to quickly see if an trading idea have some hope or just totally failure.