Why “backtesting” is holding you back

Beginner Questions
8

G’day Jake. On this one, I’ll have to respectfully disagree.

First, I’ll quote from someone more skilled than me and something I’ve quoted before

There is no substitute for statistically valid historical research when developing mechanical trading systems. In practice, this means learning how to program a computer to run simulations of trading systems performance.- Richard Dennis

Actually, it’s a very labor-intensive process. But there is no other way to evaluate and measure the potential of trade ideas.

To follow that up, if anyone wants to pop over to this thread 301 Moved Permanently you’ll see the labor involved in the above statement. However, my ego blow up and the others there were not prepared to put that hard work into practice to finalize the trading system. Pity.

The irony of it but is first you have to learn to trade and program before you can backtest. And for the records, only one bot has every passed my backtesting criteria and remains active on my charts. It can be found in that thread and is one I programmed myself. And there is no backtesting ticks.

9

Man, Im talking manual backtesting.

My backtesting has nothing to do with strategy tester, which i think he is referring to. Im talking about going back to a specific date, with the scroll back. And from that point, looking for your plan to play out by MANUALLY INSERTING simple lines and notes on the chart.

BUT, you could also do the same in the stratedgy tester. But the problem there is lack of good data and spread spikes and such. You can find the right data, but its a pain in the butt, for me anyways…

It is what it is, just another learning tool to perfect the craft of your plan, nothing more.

10

Tried to emphasize that I was coming from a place of back-testing purely TECH strategies.
:slight_smile:

I don’t disagree.

11

Im almost exclusively a Technical trader, and backtested thousands of hours. Maybe it helped me achieve my 90% win rate, *Shruggs, guess I wasted a bunch of time.

Darn it!!

Funny thing, they backtest in almost every sport also, its called Film session. To say backtesting is a waste of time and effort, and shouldnt be done is probably one of the off the wall things Ive ever heard of here.

I mean, I know it was a pie thrown in my direction when you made the thread originally, but comon man, your grasping in the air for garbage to try to make me look like the resident fool of BabyPips.

So, Mr Professional Forex trader, whats your stats like anyways? Do you even trade? Im very curious about it, seeing you know just about everything about the business.

I can bet ya 100% you wont even say, or come back with some crap like " I dont have to show you anything", Or " I never said Im a Professional trader" or " I make More then you, because your a loser trader" or " You’ll never be anything in this business" " you’ll be like the rest of the 98% losers" or " You constantly blow up account, I will out trade you anyday of the week"…

Which one will it be Dude?

12

It’s become more and more obvious (and unfortunate) that I have little to gain from interacting with you any further.

Personally speaking, I’m not really sure where some of your claims are coming from as I’ve never mentioned your account by name, whatever strategy it is that you trade, or quite frankly anything you’ve directly said in the past?

To that end, it’s also incredibly unfortunate that you’ve made some sort of attempt to “call me out” and now I feel obliged to answer. For the most part, you’re right when you say “I don’t have to show you anything”. Because, I don’t.

I don’t think that sort of devolving argument really holds merit any more, because it’s pretty easy to spot folks on the web who know what they’re talking about, and who doesn’t. However, if it will mean that you come @ me w/ more than “I beat you wear Khakis” (whatever that means), then I’ll show you how I’m making out.

  1. My strategy, thoughts, and live trades are all tracked here: PURE PRICE ACTION W/ JAKE ABRAHAMS. If you want to know exactly how I interact w/ the markets, read every post I’ve made here and you’ll be up to speed quickly. This thread was the result of an attempt to explore and share my price action strategy w/ a stand-alone FXCM account established in JAN 2016 for that sole purpose.

  2. YTD FXCM Analytics report snapshot of the Pure Price Action account below. For the record, and as mentioned many times above, I am hesitantly providing this. I was not ready to publicly release the stats for this strategy yet, but you have forced my hand, put me in the corner and I feel like I have no choice. Of course there is nothing to hide and I’m proud of what I’ve been able to accomplish, but at the end of the day I had a plan for this strategy that did not include releasing acct performance this early.

MTHLY STATS.jpg700×149 9.72 KB

LIFE STATS.jpg700×291 21.4 KB

So, let’s see your “90% win rate” and YTD performance and we can both go our separate ways happily.

Jake

13

Hey Jake, Thats pretty good, by Forex standards I would say.

I cant show you year to date, because it hasnt been a set strategy to date. As I said before, my Current system, is doing well for me at 4 trading days in. And its a accumulation of things that brought it together, and in different times. So I really cant give you much more then that, because Its been in testing/ rewire phase. trail and error, like the past 5 years, lol…

But, Im up 40%
45 trades, 5 loses
profit factor 3.1
4 trading days,

You didnt have to show, its a babypips joke,

and the Khakis thing,

It was from the state farm insurance commercial, Jake from State Farm? What color pants you wearing, Jake from state farm??, " Khakis" , lol…

Look dude, I wish you a large amount of progress in your business, There is no doubt about that. Im one to allways pat on the back for great effort, and in your case, good job.

Let me get a track record with this system, because Im never going to change it from here, so we should get a good guads of things in the following Month. Ill definitely keep you posted;;

14

Hello peeps!

In terms of backtesting,

THIS FUND MANAGER seems to like it :slight_smile:

15

Hi Jake,

I may have misunderstood, but from the way you talk about backtesting and the points you outlined, it seems to me that you are talking about manually backtesting (by hand) strategies?

16

Yep! Manual back-testing of a strategy relying solely on discretionary technical candlestick analysis.

17

[B]Forexunlimited you forget to mention the positive side with «backtesting tool »[/B]

[B]An active day trader will have very valuable to “backtest” his trading session as a debrief .[/B]

The session is still fresh in his mind and go back bar for bar to observe who he was reacting and what could be done different mental and technical in his trading…

[B]Backtesting can be a good tool to fine tone and work with you weakness…[/B]
Identify and work with scenario where you normal lose money …

Example weakness 1 for me was in strong trends days when my mind thinking reversal all the time .

Then is good to pick out trend days and working with that with a backtesting tool.

Weakness 2 for me was and is when prize goes thight side waves I jumping to much in and out of the market .

So then is helpful to find those days and work with the backtesting tool.

I think back testing is an valuable tool you save time is lot of scenarios you can work with, become better with entries /exit around minor r/s , Fine tone Sl blabla …

18

Hey Jake, Looking at your thread. First off, I didnt go and research your user name to get a dig on you, I might have treated you a taddddd differently off the bat. You came at me weird. And, honestly, I never seen you around here. Plus, I am defending myself, my actions and blahblahblah, because thats just me.

I believe in the possibilites of Major Wealth, and honestly, I also believe Im going to hit my goals, $54 Million, …

Sounds crazy and unrealistic, I know, I know, but if it has been done, Im going to figure it out to duplicate it.

Sounds funny, but I think we are more the same. Just taking totally different avenues to get there, and you evidently know about 99.99999999999% more then I do. And Id admit it, Im Really forex dumb. My focus has always been the candles, the action, and the money. Been here 5 years, and just learned, or actually paid attention to things like EURGBP, lol… I thought it was EURGPB, But I never paid attention to that stuff. ALthought some might say, WTH is he talking about, My focus has always been THE ACTION. How do I do this? How can I make this work? Like a freaking clocksmith, just watching the gears, forget when they came from, forget who makes them, Im focused on the Gears, the inner working of the price moving up and down.

I dont give a crap about anything else, Im focused on the action and reaction, to get that pip, that single .0001 of movement. What makes it tick.

Forums are baddddd man, bad bad bad,

I have respect for you, I hope you do well, like I said, before, we are after the same piece of Pie, you go in with a spoon, I go in like the Taz.

Hey man, We’ll see what happens right?!

I aint heard no bell.

19

@ Torulf39 - How do you account for the fact that there is literally zero emotion involved and absolutely no frame of reference for your tolerance to risk (i.e. account exposure)?

@ MoneyNVRSleeps - I’ll take that as a compliment and, no worries we’re all good.

See you around.

Jake

21

Hey Jake what about people using algorithmic trading or EA’s? Surely backtesting helps with that.

22

I don’t disagree Kinz and was solely focusing on manual [B]discretionary [/B]candlestick trading.

Jake

23

Jake,

After reading your initial post as well as your subsequent ones, I do agree with the majority of what you have said. For manual traders, I have always advocated to skip trading on a demo account and start with a live account right from the start (with a small amount, of course). Even a small live account will allow a trader to feel the emotions, and start working on following his or her trading plan and discipline. At the same time, manually (by hand) backtesting a trading strategy is very prone to personal bias and look-ahead bias.

With that said, I think you could have phrased your opinion a bit more clearly. You seem to have used the terms “discretionary trading” and “technical strategies” interchangeably; they are more opposites if anything. A “purely technical strategy” as you stated, usually refers to a strategy that is 100% mechanical, as in algorithmic. By that logic, it wouldn’t make any sense to backtest such a strategy by hand, rather an automated backtester would be a better solution. On the other hand, a discretionary trading strategy may use technical analysis, but would also require the subjective opinions of the trader.

Every point you have addressed applies only to discretionary trading and not so much algorithmic/technical/mechanical trading. I think this should be made clear so that new traders reading this thread do not get confused or form bad habits.

24

I totally disagree. The one and only thing that gave me the confidence to trade live was manual back testing.

25

As a trader starts his trading what is more important for him is that he should be having a good trading knowledge and there will be a confidence that will back up his such trades …

26

[B]My contention is quite simple MARKET REPLAY used in correct way a very important tool for a trader’s development.
*In my previous post you find the points why I think Market Replay is important.

[/B]

ZERO EMOTION

Interesting theme: it is well under category (EMOTION), which is the main reason that most falling away when account approach to ZERO

Personally, I believe that one should value and boasts of performance after the size of the account and the consequences of loss

[B]How much emotion is now really present when the account is between 1 to 10 K.[/B]

What are the consequences of loss !!!

Under 1 K is demo account emotion .

[B]That is why I am so impressed by Fxviper 7 million accounts … by loss the consequences are enormous for the man …
[/B]
Example :

Take your results … based on 1-10 k account, okay result … world is not going under at a loss of acount .

50K account then we start to speak, good result.

*100-200 k account very good result …im impress

500-1000 K extremely good result , Im very impress ,you have balls of steel.

*Example one trader I know aggressive trading style, all over 50K in the account taken consistently out…
Then he controll his emotion …

Normally he has results that you refer to year after year.

Another I know have his limit at 70 K after there is the emotional burden too heavy .

27

I agree that manual becktesting (i.e scrolling back on the chart and manually test you strategy) has limited use - maybe just to get familiar of entries and exit procedures.
It’s tedious, prone to mistakes and ‘white lies’ you can only test one pair at the time and over a very small sample.
If you want to backtest properly you need to automate it using a proper charting package that allows you back test at portfolio level over a lot of trades.
I did hundreds of them using Amibroker and data going back years, over 10-20 pairs at a time. What I found is the the vast majority of purely mechanical systems don’t work in FX. Those that do are pretty lame. That’s what stopped me form trading fx until now. I’m still very tentative at it. It tells me that FX needs a significant level of discretion in trading to make it profitable. To that extend backtesting IS holding you back.
The good part of backtesting is that you can see very quickly what works and what doesn’t and when you find something that does, you can optimize it at a click. for example - in babypips article on how to build a mechanical system one example is using ma5/ma10 crossover in conjunction with RSI and stochastic. On back test that system works on the long side but not on the short side. winners are only 36%. Running optimization it turns out you can improve it if you use a ma5/ma12 crossover instead. it’s very odd but it seems common that some systems work on the long side but not on short and the other way around. I didn’t expect that in FX as there isn’t any bias like in the stock market.
Anyway, that’s my experience. If you want to do it you need to brush up you computer code skills as they are needed to covert your system into something the software can execute.

28

GIGO - Garbage in Garbage out.

It means that if you cant back test correctly then your results will not correctly reflect the system in question. People who trade technical systems, but disagree with back-testing simply have an issue and fail to think logically.

Back testing does not lie, it does not reflect unfair results, it does not tell white lies, it is not different because of your emotions, it is not different data, it is not different because real money is not on the line…and the list of myths continue.

The only difference is you as a human being. Fix your own emotions and proving you have back-tested a LARGE ENOUGH sample size to give you a LARGE DEGREE OF CONFIDENCE and your results will be as accurate as live trading.