Backtesting Accuracy

How Accurate is the Backtest? 

This is one of the most common questions in semi automated and grey box trading.  The answer is seldom what people want to hear.

Back test results give you an edge much like seeing which way the wind is blowing before hitting a golf shot.  It helps you to understand what to expect and be better prepared than your competition.  Simply stated you are better off than an individual who does not have that information.  However every single day in the market is different than the day before.  There are zero guarantees on any market day that the results will be the same.  

What you need is have a plan that takes into account both good and bad scenarios that may result after initiating the trade.  You have to know how much you are going to be willing to lose on any trade, and have a plan if something in the market makes the strategy which backtested well start performing poorly.  

In most cases good backtest strategies work for a period of time and then the conditions change and you have to find a different edge.  What is nice is that with our software you are able to test almost any scenario and be prepared.  

Keep things simple; If you are trying to trade a strategy with a 70% success rate you are starting off at a good point, better than most.  Keep it simple and disciplined and you should do great.  

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