I’m currently going through the process of backtesting different parts of my strategy to make it as optimised as possible and am unfortunately seeing a lot of my trade setups invalidated as a result of economic data releases.
Does anybody have any suggestions for dealing with data releases during backtesting? Struggling to find a way to account for them which affects my trade setups significantly. My live strategy would take into account when data is going to be released so that I can either hold off on placing a trade or adjust stop accordingly.
How essential is it for the backtesting results? Sure, on an individual trade, you would want to do whatever it takes to mange risk and ensure profit. But backtesting over anything over 3 months, you have to assume there would have been some significant fundamental events and news releases. Some would have been unusually negative but surely some would have been unusually positive, especially in forex, where one trade might be opposite the last one in the same pair.
Therefore, assuming no FA event causes a wipe-out, don’t the positive and negative FA events cancel each other out?
True, they would cancel out. However, if I was trading live and I saw that tomorrow there was a high impact data release that would affect the current pair I wouldn’t place the trade. I’m finding it difficult to implement this when backtesting because if I go back through past data releases I can immediately see the results which will skew my view on whether I should place the trade or not.
I’d not worry about it too much. Back test it with the events in place. If your system overall wins, then forward test on demo.
Unless you’re day trading or scalping, they don’t often make a huge difference anyway. Most of the time, you get a big, whipsawing candle whilst retail traders try and guess what the market will make of the news, then the trend continues because the market already expected the data.