Thursday, February 10, 2011

Backtesting a Method

Nirav said;

I want to ask you about trading method/system.

  • Period of back test.
  • Type of market for the back test.
  • Duration of using that method.
My Notes:

The period of back test should be according to the type of trading. If you are a short term trader then the period should be 5-6 months, and if you are a long term trader then the period should be at least 2 years.

Type of market depends on which type of market you trading. If you trading in a bullish market and taking a back test result from a bearish market then it is worthless. You want to select a market that has been different types of price action - up, down and sideways. Stocks/Futures that trend well are suitable candidates for backtesting.

All mechanical systems degrade, go through long periods of disharmony with actual markets. This fact should be kept in mind while backtesting, since the future remains unknown.

1 comment:

jitender said...

Hello Sudarshan Ji
After visiting your blog twice daily for almost a month its good to see you back.
The mechanical part of my mind asks me to go short almost everyday after see technical indicators but it has to face huge resistance from the optimistic human part of it which everyday hopes for a bounce back from oversold levels. Winning in trading requires winning emotions first
Jitender Yadav
New Delhi