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Dave Masalov (talk | contribs) (Created page with "==Understanding Backtesting limitations== Backtesting (strategy calculation on historical data) is an essential tool for a certain type of strategies. However, it has some lim...") |
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==Understanding Backtesting limitations== | ==Understanding Backtesting limitations== | ||
<div style="background-color: #E5F6FF;">'''Note:''' Past performance is not necessarily indicative of future results.</div> | |||
Backtesting (strategy calculation on historical data) is an essential tool for a certain type of strategies. However, it has some limitations as every simulator has. | Backtesting (strategy calculation on historical data) is an essential tool for a certain type of strategies. However, it has some limitations as every simulator has. | ||
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Broker latency can be negligible for position trading while it should be taken into consideration when the position holding time is relatively small. | Broker latency can be negligible for position trading while it should be taken into consideration when the position holding time is relatively small. | ||
<div style="background-color: #E5F6FF;">Example : Strategy 1 average position holding time is 30 minutes. Strategy 2 average position holding time is several seconds (scalping). In the first case latency factor is negligible, so strategy 1 backtesting results will be more or less the same as live trading performance. However, in case of strategy 2, broker latency can change live trading performance dramatically compared to backtesting. </div>Generally, the higher average profit per position and average position holding time are, the more accurate backtesting results are. | <div style="background-color: #E5F6FF;">Example: Strategy 1 average position holding time is 30 minutes. Strategy 2 average position holding time is several seconds (scalping). In the first case latency factor is negligible, so strategy 1 backtesting results will be more or less the same as live trading performance. However, in case of strategy 2, broker latency can change live trading performance dramatically compared to backtesting. </div>Generally, the higher average profit per position and average position holding time are, the more accurate backtesting results are. | ||
==Backtesting vs Live Trading== | ==Backtesting vs Live Trading== | ||
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| The difference between real-time and historical calculation is especially seen on certain chart types (e.g. Point and Figure) than others due to their inherent nature in bar formation (see [[ | | The difference between real-time and historical calculation is especially seen on certain chart types (e.g. Point and Figure) than others due to their inherent nature in bar formation (see [[Intra-Bar Order Generation, Bar Magnifier on Non-Standard Chart Types]]). | ||
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*[[Precise Backtesting]] | *[[Precise Backtesting]] | ||
*[[Intra-Bar Order Generation]] | *[[Signal Settings|Intra-Bar Order Generation]] | ||
*[[Bar Magnifier]] | *[[Bar Magnifier]] | ||
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<div style="background-color: #E3FBE5;">Note: Different backtesting and strategy calculation methods can be selected which will produce different results. </div> | <div style="background-color: #E3FBE5;">Note: Different backtesting and strategy calculation methods can be selected which will produce different results. </div> | ||
Backtesting, optimization, and forward testing (real-time simulation) provide an insight into potential performance of your strategy in “ideal world”. This information should be analyzed to get a range of possible scenarios. It is up to trader to decide if this range is acceptable for live trading or not. | |||
[[Category: Backtesting]] |