280
edits
Changes
no edit summary
==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.
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.
==Backtesting vs Live Trading==
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]]