backtesting and need help

Discussion in 'Strategy Development' started by jv2, Jan 29, 2012.

  1. jv2


    on the process of doing some tests.

    just a question although im not sure how it can be answered but will try to ask anyway and appreciate any feedback.

    unsure how to determine when to enter either a position for the first time or back into a position.

    should i be looking at the tickets to determine an entry point or is this something that comes with experience and beyond the scope of my knowledge at this point?

    for example only:
    lets ABC is trading at 30 and say i buy1000 shares of ABC at 30. i want to exit if ABC is down 1%, so i place a stop. i exit position when ABC hits 29.7 with my stop. now im down 1%. am i now looking at the tickets to determine an entry point for ABC? do i look at volume? chart+trends?

    this is assuming no major news or announcements on ABC between yesterday's close and today's opening.

    i dont see much discussion about entry points, but im pretty new here and i apologize if its here somewhere.
  2. 1. Why did you enter ABC in the first place? What was the decision variable.
    2. How did you determine your stop? Looks like a stock could easily go from $30 to $29.70. Pretty tight. Stop to some degree should be a function of volatility over the interval you are trading.
    3. What do you use - vol - price + trend? People use all kinds of things. It is up to you to decide what to use and more importantly understand why you are using it.

    There is no one way.

    Start small.

    Do it. Make some mistakes. Do it again. Kind of like me with women.
  3. Sure there is one way. The right way. Used by all successful traders. Ever notice how they always seem to be on the correct side of the moves in the markets they trade? Who is on the other side?

    Now wrong ways - there are as many of them as there are people, but it all comes from the same place.

    Starting before being ready is the unifying factor common to all losers.

    The OP asks the most fundamental question-how to know when to enter a position. Without knowing this, nothing else should be a consideration. The first question to ask.

    Answering this question will lead to many many more before the "doing it" stage is reached. Why make mistakes? Sufficient planning and understanding means that come execution time few or no mistakes are made.

    Getting it wrong in trading means the death of your account and the end of your time as a trader.
  4. OP: What did your backtest suggest?? :confused:
  5. jv2


    1. its volatile, inexpensive, and growing. average volume is pretty high

    2. the stop was determined based on the percentage that im prepared to lose. going back few years i do see that its tight. im trying to find a better stop.

    3. im not sure if i can answer this right now. i dont trade so its hard to make that determination

    did you have an answer to the OP question?
  6. I know this is the strategy design sub-forum, but why does a strategies desirability need to involve backtesting so heavily in it's conclusions?

    Backtesting is great to test out code...but thats about it. Every extreme and combination thereof can be tested from the past only to reveal that the boundaries are so wide that the trade is not cost-effective.

    A real strategy involves much more research that the lines drawn with backtesting.

    Now I am going to really catch it for this post...bring it on.

  7. look ... last year two traders tried to help me...One believed heavily in backtesting...I opened my mind up to him just to discover that the sort of trading that he did was not my style. He deduced that he gave me the winning ways and eventhough he handed me the keys, I was unable to trade. I traded his system manually and made some profit...BUT IT WAS NOT THE WAY I LIKED TO TRADE NO MATTER WHAT THE BACKTESTS REVEALED!

    The other trader was just the opposite and did not believe in backtesting. He claimed to be just as successful as the first trader that tried to help me. I traded both systems for a small temporary profit...but again "not my style". Who was correct? Which trader had the keys?

    Sometimes when designing a profitable system there needs to be a realty check made...would I go through extended periods of loss to make a profit in the end? Will the market cycle mimick the results I got from the backtests of the past? Can the sort of strategy design really be automated...? CAN I TRADE IT DAY IN AND DAY OUT AND KEEP MY FREEDOM AND HAVE A LIFE OUTSIDE FROM IT? DOES IT KEEP ME AWAKE AT NIGHT OR INTERFERE WITH MY LIFE?

    There is much more to strategy design than just to program takes a trader to use it and profit from it.

    The world changes... the market changes... and to base your boundries around that ...well then the sky is the limit and it can never be canned!

    jv2 ...the trade needs to fit you like a good fitting shoe... when you enter.. you need to have the confidence in your outcome and know what to expect. see the reality and place all of your research in the correct perspective. if the answer would lie in your backtests...well wouldn't trading be easy and wouldn't all the winning traders be logical people?

    I hope my posts do not find the readers as being off-topic. I thought I would try and share in this sub-forum (first time I think). Thank you for your time to those that read my posts.

    Electric (over & out)
  8. jv2


    thank you
    i do appreciate the responses you have shared.
  9. Backtesting a strategy is not about belief. It's about objectively and efficiently ruling out unprofitable ideas in a rational, evidence based way.

    Nothing about this is easy, and most if not all profitable traders actually are logical, and arithmetically quick thinking people. If they're not sales people, they're engineering types.

    There is no voodoo magic or intuition in this game, unless you're playing for entertainment.
  10. Your honor...He shot a gun before.....

    To rule out.. on "hypothetical repeats of history" just does not do it for me...Heck...just make a chart up with would be the same thing... the "historical" or "not historical" part would have nothing to do with a logic based solution.

    Movement, Trend and Divergence is random but they exist. For example: In Forex it is very common for a Bank to put on a position in stages...they start the cascade and get help from all of the other trend followers along the way. It is designed...Many backtesters mistake this for a historical record of movement when it is by design. Also in Futures many programs will kick in trades at certain levels...these levels are dynamic and not really based on history...they are not always support and resistence...There are many other examples of why the design of price movement has nothing to do with history.

    To master the "quantitative" without the "backtesting" is really a feat in itself. I believe a trader is needed to complete any equation...not backtesting.


    It's about objectively and efficiently ruling out unprofitable ideas in a rational, evidence based way.
    #10     Jan 29, 2012