Developing Python/R/Matlab strategies vs. trading platforms

2weels · Aug 12, 2017

Simples, thanks for the great answer. No I have not tried that yet, I am just now trying to choose a data source for equities. I'm not as fast as you guys .

Simples said:
Yes, backtesting is a fundamental part of mechanical trading (not to be confused with discretionary trading). Without sound backtest results, where's the basis to make any trades using a mechanical system? Computer-systems today are dumb, so need to be calibrated to catch what you want to catch - the winnings, while minimizing losers. It's simply not enough to believe/hope RSI(2) < 20 is good, although a good trader could filter out the bad signals in realtime, without really knowing how she does it.

Backtesting pose new problems and require more efforts though. Whatever happened in the past, won't happen again, but it may look similar, so you may choose to program in those similarities. If the markets change though, the very parameters that brought profits may even become detrimental, so you better choose characteristics that do tend to stay.

Charts may lie, because they make you believe they will repeat themselves exactly. So it is with good backtests. There are many methods to make backtesting more robust and resilient to various biases and errors. Too much to discuss here, but for example data errors may make your backtesting results great, but won't happen live the same way. So fixing data becomes the first issue to resolve. Also the logic need to be resilient and general enough to make allowances for differences in price action, etc.

If what you do really works for you though, don't worry about it until you need to perhaps. However, in my experience there's lots of pitfalls in both trading and backtesting, and overcoming these consistently and mechanically is a very very long road indeed. Maybe faster doing it discretionary, but I choose not to spend my time trading manually.

Have you tried forward testing or testing on huge diversity of data (other instruments, time periods, future data) yet?
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Developing Python/R/Matlab strategies vs. trading platforms

2weels