This part of trading is very unattractive to most people or simply performed incorrectly. There is nothing flashy about back-testing and it requires time, work and patience. Most individuals interested in trading will avoid this part of the job all together at first or use an automated approach to testing, leading them to failure after failure without ever acknowledging the issue! I know the idea of so much work consisting of this much time is daunting but you will learn to appreciate the process. Even if you never like testing a strategy, you don't really have much of a choice. You will eventually develop some way of testing/monitoring your trading strategy & performance because without this, I can almost guarantee you will not succeed.
I have touched on many of the back testing mistakes in the past and will discuss more in the future I am sure- but today I am going to answer a crucial question that has been asked to me several times.
When Back testing a strategy, do I need to test the strategy for each individual market (ticker) I am trading?
The answer to this question is YES! Let me clarify exactly what I mean so there is no confusion-
As an example, lets say you have created a strategy and tested it correctly on GOLD (XAUUSD). Your test results show that this strategy DOES work when trading gold and maybe you have successfully used it in your live account as well. This DOES NOT mean that this strategy is going to work when trading Silver or EURUSD or TSLA. You must test each market (ticker symbol) separately, as results will vary wildly. A strategy that is profitable while trading one market may not be profitable in another! It is important that you gather proper data points in regards to this strategies performance as well, in order to identify any changes in results over time. It is not uncommon to have to make adjustments to a strategy over time as market conditions and behavior change- to ensure you remain profitable.
In summary- each market (or ticker symbol) must be treated as its own entity, therefore your strategy needs to be tested for each individual market you plan to trade it in. After you have tested a strategy and it is producing profits, you will want to monitor this strategy, in order to determine if you are making trading mistakes or simply need to make new adjustments to accommodate recent changes in market conditions, or behavior.
I know this was a short one but very important! I hope this was helpful and if you have any questions or would like to use the backtesting tool that I use- please leave a comment and I will follow up asap!
I have touched on many of the back testing mistakes in the past and will discuss more in the future I am sure- but today I am going to answer a crucial question that has been asked to me several times.
When Back testing a strategy, do I need to test the strategy for each individual market (ticker) I am trading?
The answer to this question is YES! Let me clarify exactly what I mean so there is no confusion-
As an example, lets say you have created a strategy and tested it correctly on GOLD (XAUUSD). Your test results show that this strategy DOES work when trading gold and maybe you have successfully used it in your live account as well. This DOES NOT mean that this strategy is going to work when trading Silver or EURUSD or TSLA. You must test each market (ticker symbol) separately, as results will vary wildly. A strategy that is profitable while trading one market may not be profitable in another! It is important that you gather proper data points in regards to this strategies performance as well, in order to identify any changes in results over time. It is not uncommon to have to make adjustments to a strategy over time as market conditions and behavior change- to ensure you remain profitable.
In summary- each market (or ticker symbol) must be treated as its own entity, therefore your strategy needs to be tested for each individual market you plan to trade it in. After you have tested a strategy and it is producing profits, you will want to monitor this strategy, in order to determine if you are making trading mistakes or simply need to make new adjustments to accommodate recent changes in market conditions, or behavior.
I know this was a short one but very important! I hope this was helpful and if you have any questions or would like to use the backtesting tool that I use- please leave a comment and I will follow up asap!
