Know What Is Backtesting (Part II)
The first was doing automated Backtesting. Automated Backtesting is easy. The second method of Backtesting is performed manually and visually by the trader. The trader would take the historical data and scroll back in time on a chart and manually apply the trading strategy as if it was in a real time environment.
The trader would advance the chart bar by bar in order to refrain from seeing price action subsequent to the trade at hand. This eliminates trading in hindsight that is detrimental to an objective backtest.
The major disadvantage of Backtesting as compared to automated testing is the significant potential for human error in executing simulated trades and recording performance results. Manual Backtesting is complicated and difficult. It requires a lot of patience on part of the trader.
Furthermore, it takes a great deal of work and discipline to simulate trades manually over a large data set without straying from the strict rules of the trading strategy. Additionally the normal range of human emotions and biases that often interfere with actual trading can be a detrimental factor in achieving objective backtest results.
However, this provides valuable trading experience although simulated but still a valuable trading experience that no automated backtest could possibly provide. Backtesting manually can provide the trader with the real feel for actually trading the strategy.
No matter whether you do Backtesting manually or automatically, Backtesting can save traders a great deal of time and money that might otherwise had been wasted on trading unprofitable strategies. Backtesting whether done manually or automatically can be one of the most important elements of building a solid trading strategy. Backtesting is now an important element of testing a trading system performance.
You must have heard a lot about the benefits of autotrading. Autotrading is the latest fad especially in forex trading where the number of major currency pairs is only six. This makes programming forex autotrading easy. Any mechanical trading system can be backtested. This leads us to the important question of autotrading. These autotrading systems are popularly known as Expert Advisors or Forex Robots.
As compared to the forex market, only the US Stock Market has got more than 50,000 stocks listed with them. This makes programming a stock trading robot a bit complicated. However, during the past decade major breakthrough in computer programming has been made.
An autotrading system needs to be thoroughly tested before being put to live test. The only way to do this is through Backtesting. Backtesting is one of the most important components of testing an autotrading system. Big institutions like banks, corporations and hedge funds have always been taking benefit of these autotrading systems.
What type of trading strategies can be backtested and autotraded? These types of strategies are primarily technical in nature, and they must necessarily have rules and criteria that are unambiguous. Backtesting and autotrading are two important components of implementing trading strategies that generally do not rely upon the trader's judgments or discretion.
Backtesting allows the trader to determine if a given strategy would have been profitable using past price data, which is an indication of how it might potentially perform in the future. In contrast, autotrading actually executes real trades automatically according to a pre - programmed set of instructions that sets trade entries, stop losses, and profit limits. - 23305
The trader would advance the chart bar by bar in order to refrain from seeing price action subsequent to the trade at hand. This eliminates trading in hindsight that is detrimental to an objective backtest.
The major disadvantage of Backtesting as compared to automated testing is the significant potential for human error in executing simulated trades and recording performance results. Manual Backtesting is complicated and difficult. It requires a lot of patience on part of the trader.
Furthermore, it takes a great deal of work and discipline to simulate trades manually over a large data set without straying from the strict rules of the trading strategy. Additionally the normal range of human emotions and biases that often interfere with actual trading can be a detrimental factor in achieving objective backtest results.
However, this provides valuable trading experience although simulated but still a valuable trading experience that no automated backtest could possibly provide. Backtesting manually can provide the trader with the real feel for actually trading the strategy.
No matter whether you do Backtesting manually or automatically, Backtesting can save traders a great deal of time and money that might otherwise had been wasted on trading unprofitable strategies. Backtesting whether done manually or automatically can be one of the most important elements of building a solid trading strategy. Backtesting is now an important element of testing a trading system performance.
You must have heard a lot about the benefits of autotrading. Autotrading is the latest fad especially in forex trading where the number of major currency pairs is only six. This makes programming forex autotrading easy. Any mechanical trading system can be backtested. This leads us to the important question of autotrading. These autotrading systems are popularly known as Expert Advisors or Forex Robots.
As compared to the forex market, only the US Stock Market has got more than 50,000 stocks listed with them. This makes programming a stock trading robot a bit complicated. However, during the past decade major breakthrough in computer programming has been made.
An autotrading system needs to be thoroughly tested before being put to live test. The only way to do this is through Backtesting. Backtesting is one of the most important components of testing an autotrading system. Big institutions like banks, corporations and hedge funds have always been taking benefit of these autotrading systems.
What type of trading strategies can be backtested and autotraded? These types of strategies are primarily technical in nature, and they must necessarily have rules and criteria that are unambiguous. Backtesting and autotrading are two important components of implementing trading strategies that generally do not rely upon the trader's judgments or discretion.
Backtesting allows the trader to determine if a given strategy would have been profitable using past price data, which is an indication of how it might potentially perform in the future. In contrast, autotrading actually executes real trades automatically according to a pre - programmed set of instructions that sets trade entries, stop losses, and profit limits. - 23305
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. Try This Cash Printing Forex Signal Service From Heaven! First practice on your Forex Demo Account!
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