Are you guaranteed to fail in trading if you don’t backtest?
My opinion, there’s no guarantees in anything trading related. I know there are huge backtesting fans here in the Forums. I’ve only demo traded and I guess forward tested and now trading a real account based on what I demo traded for several months.
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I would rephrase that to it’s useful to backtest when market sentiment is following similar patterns over a period of time of your choosing. That’s an edge you have.
However, this year’s market sentiment is diabolical with little similar patterns emerging consistently. Major fundamental events are common place, featuring large spike actions on FX pairs, which could blow your S/L.
Beware.
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Without back test, you have higher chance to fail.
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i’d say “almost guaranteed,” not “guaranteed”, but that’s splitting hairs
most people who do backtest still fail
but not backtesting makes your chances of success lower still
the important thing is to learn to ignore people who will tell you that it has no value for them, and that “therefore” you shouldn’t bother
this thread may interest/help you:-
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Back testing isn’t a guarantee, but it’s a valuable tool for improving your trading success. It helps you refine strategies and make informed decisions. Don’t skip it
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Hello Naruto!
Are you guaranteed not to be stolen if you lock your car’s doors?
No, you are just decreasing the chance of failing!
Look at backtesting just like that!
Best Luck./
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No there is no guarantee but it will help you understand the nature of the market and that’s all.
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good metaphor. thanks!
backtesting not as helpful this year you mean?
What do you think is a successful backtest? I mean what do you look for when you backtest. Is it all about profitability, or are their like different goals for backtests?
It’s exactly what I mean, particularly for the Major FX pairs GBP & EUR/ USD, and probably the USD/JPY as well. And it will continue while the Ukrainian war continues…
I think it’s the same with purchasing a phone, you have to check the specification before putting your money into it. In trading, we have to test our strategy based on historical market data to check if it would work in the past.
I recommend you check this article to learn how to do it in TradingView
https://insights.primecodex.com/backtesting-in-forex/
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It is often said that there are only two certainties in life, death and taxes.
You are not guaranteed to fail if you don’t backtest your strategy anymore that you are guaranteed to win if you do.
I’m not a huge fan of backtesting because it is usually fraught with flaws even when you are trying your best to be on point with it.
That said, developing a strategy is a bit like painting a canvas: The artist starts off sketching a vague outline then begins building up the colours around that outline until his or her vision starts to emerge from the canvas.
Backtesting is you sketching out your strategy. You don’t want to waste too much time backtesting because it doesn’t guarantee your strategy will hold up going forward but it will give you a general idea of how your strategy is likely to play out.
Forward-testing on demo is you adding colour. If your strategy holds up and you are getting results that are consistent with your backtesting then you are probably on to something.
The last hurdle is largely psychological: can you maintain the composure and self-discipline necessary to do it with real money?
If you can, that’s when you will start extracting the anticipated profits from the market and your vision will have become a reality.
Hope this helps.
Dan
Trading without back testing does not guarantee failure just as doing back testing in trading does not guarantee success. Doing back testing is an important and helpful principle so that you can increase the percentage of success and profitability of your trades.
Backtesting is a part of market analysis that will help you identify the support and resistance level.
Backtesting will help you detect the support and resistance points that help a trader instill TP and SL point.
Backtesting is a crucial step in developing and evaluating a strategy, but it does not guarantee its success.
Are you guaranteed to fail if you don’t backtest? No.
Do you increase the likelihood of success if you backtest (properly)? Yes, but not guaranteed success.
What is “properly” backtesting? There are plenty of forum posts and resources out there to search, study, and analyze.
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Properly backtesting refers to conducting a thorough and systematic evaluation of a trading strategy or investment approach using historical data. It involves simulating trades and applying the strategy to past market conditions to assess its performance and potential profitability. While the specific requirements may vary depending on the strategy and market being analyzed, here are some key aspects to consider for proper backtesting:
- Historical Data: Gather accurate and reliable historical market data for the relevant timeframe. This data should include price information, volume, and other relevant indicators.
- Trade Execution: Implement realistic trade execution rules, taking into account factors such as slippage, transaction costs, and market liquidity. This helps to simulate the real-world trading conditions accurately.
- Position Sizing and Risk Management: Incorporate appropriate position sizing and risk management techniques to reflect the intended risk-reward profile of the strategy. This can include setting stop-loss orders, defining position size based on a percentage of capital, or employing other risk control measures.
- Parameter Optimization: If your strategy involves adjustable parameters (e.g., moving average lengths or indicator thresholds), consider conducting parameter optimization to identify the optimal values based on historical data. This step helps to improve the strategy’s performance by finding the best parameter combinations.
- Out-of-Sample Testing: Reserve a portion of the historical data for out-of-sample testing. This allows you to assess how well the strategy performs on data it hasn’t been trained on, providing an indication of its potential robustness and ability to adapt to new market conditions.
- Statistical Analysis: Apply appropriate statistical metrics to evaluate the performance of the strategy, such as profitability measures (e.g., return on investment, profit factor), risk-adjusted metrics (e.g., Sharpe ratio, Sortino ratio), drawdown analysis, and other relevant indicators.
- Realistic Assumptions: Consider any assumptions made during the backtesting process and ensure they reflect real-world constraints, such as account size, trading hours, market impact, and availability of historical data.
- Trade Simulation Software: Utilize specialized software or programming languages designed for backtesting, such as Python libraries (e.g., pandas, NumPy) or dedicated platforms like MetaTrader, TradeStation, or Amibroker. These tools can help streamline the backtesting process and provide robust analytical capabilities.
By following these guidelines, you can enhance the reliability of your backtesting results, gain insights into the strengths and weaknesses of your trading strategy, and make more informed decisions about its potential viability in real-world trading scenarios. However, it’s important to note that backtesting is not a guarantee of future success, as market conditions can change, and there may be limitations or biases in historical data that can affect the results. It’s always advisable to combine backtesting with other forms of analysis and consider risk management principles when implementing any trading strategy.