Is backtesting reliable?
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  1. #1
    Join Date
    May 2006
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    Default Is backtesting reliable?

    Backtesting is statistics based on past results.

    If the market did the same in duration for 10 years, it does not mean that it will perform the same in the future but it may.

    Do you think backtesting is reliable?

  2. #2
    Join Date
    Jun 2006
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    31
    Seems to me that backtesting is just like the pattern or the history of the market and it is reliable in predicting the future, though there are other factors to be considered, don't rely on this thing fully.

  3. #3
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    Dec 2006
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    The strategy which has one exception in the past 10 years and was proved to be false once. Can mislead, hundreds of times in the future. Well, everything will have an exception. Backtesting is useful, and you might find that your strategy is accurate. Proper management to your risk and reward, you can be a winner with it.

    But always put in mind "conesecutive losses".

  4. #4
    Join Date
    Dec 2006
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    124
    Churchille, I must disagree on this one.

    by definition, technical analysis is relying on the pair's history, in order to predict its future. saying you can't rely on backtesting equales to saying you can't rely on technical analysis.

    this is partially true, however, if you do your homework around the fundamental area, you should be covered. (unless, of course, Ben Laden strikes again, or whatever... some things are never to be predicted - and that's where money managment kicks in)

  5. #5
    Join Date
    Dec 2006
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    440
    hi,

    If you have a trading strat that involves moving average crossoveres etc and you wanted to test that then its useful to see how often these crosses take place in your time frame, whether they would have made any money for your risk etc.

    If there are a lot of whipsaws etc

    So it has its place and is useful in that respect.

  6. #6
    Join Date
    Dec 2006
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    20
    I think backtesting is necessary for us to learn how to trade...I personally learned all the things that dont work...which is most things.
    All systems work some of the time, including my flip a coin sytem, none of the systems work all of the time, including my flip a coin sytem. So its up to you whether to backtest or flip a coin.

  7. #7
    Join Date
    Jan 2007
    Posts
    1

    Default re backtesting

    i understand that you want to verify that your system is working like you want it to. But why backtest it if you can use a live demo account? Any clarity on this would be appreciated.

  8. #8
    Join Date
    Dec 2006
    Posts
    20
    Backtesting will tell you very quickly what does "not" work. If you learn what not to do....then you will know what to do. Altough I have developed a number of systems backtesting, there are many other factors involved in trading. Amibroker has a great, and affordable, backtester along with free forex data.

  9. #9
    Join Date
    Dec 2006
    Location
    White guy in Korea
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    32

    Default Another program

    Hi Trader:

    For what it's worth, InterbankFX also has a back testing option built into their trading platform. Haven't used it, but for those interested in exploring various systems it's one more up for dissection.

  10. #10
    Join Date
    Dec 2006
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    Wichita Falls, TX
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    Quote Originally Posted by jmjolnir View Post
    i understand that you want to verify that your system is working like you want it to. But why backtest it if you can use a live demo account? Any clarity on this would be appreciated.
    It comes down to time and quantity. Backtesting will allow you to evaluate potentially hundreds or thousands of trade signals in a relatively short time. How many live demo trades can you make in an hour? Not enough to validate your system idea I should think.

    That said, not a bad idea to back test using historical data, then forward test in a demo account.

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