Actually, back test is almost always just a glimpse at the value of the strategy/trade, regardless if the strategy is fully automated or semi-discretionary. There are so many factors that are hard to take into account that usually it makes sense to go live in tame size and take it from there.
%% I agree automate plenty; + dont forget the discretion, on which market to trade, because most wars are not won in 50 /+days like operation Desert Storm.
sle, I apologize for responding to your answer with more questions, but my hesitation is over-ruled by my desire to understand. What do you mean by "structural reason" "theoretical" and "regime" Thanks much. Jim
Yes, I'm only going full auto (with monitoring). I definitely do not trust myself. I once did some stock trading the old fashioned way, and lost a significant amount of money before wising up and quitting.
Structural reasons - somehow the world is set up in such way that something is mispriced. For example, implied volatility is over-priced because the institutional investors are forced to hedge big downside swings. These dislocations are usually very stable and will persist for a while. Theoretical edge - for example, if two securities are supposed to converge at some point or have a theoretical relationship that is dislocated. For example, if you can buy a bond and an equity put on the same company with the same maturity in such way that the yield pays for your option. It's not a true arbitrage, but your chances of making money are better than average. Regimes in general refer to the repetitive behavior of some market. A simple case could be "trend vs chop" or something like that.
%% Amen Mr Tweets; getting hands dirty with data a help$,2.Sometimes i hand draw a 50 day moving average + weekly candlechart........, even though autodrawn looks better- neater + more cool LOL
I completely concur with JSOP's post above. Anyone relying on simulated trades must be beware that some simulation platforms give notoriously unrealistic fills. As just a single example, I'm certain there must be others, the TD Ameritrade-Thinkorswim platform, an excellent platform overall but one not well suited to short-time-frame trading, will fill simulated buy orders on the bid and simulated sell orders on the ask. The exact opposite of what happens in most retail trades. This is not so important in testing trading schemes on longer time frames but it completely invalidates any results for short time frames. You will also find that under this kind of fill you are a trading genius, in fact you're a market maker! You can partially compensate for this by making the result of any simulated trade two ticks worse.