Back testing using software

[ralts2001]

Hi,

This may seem like a stupid question but is back testing software a good investment?

I currently back test manually and it is getting to a point where time to do it thoroughly is becoming more limited.

Also can anyone:
1/ recomend or direct me to some back testing software/sites or articles on the software available?
2/ if you are using software to back test, how do you find it and does it provide you with confidence that your trading approach is sound?
3/ (this one's a little vague but...) are there consrictions/limits on how you can test your trading approach?

Thanks for your help.

Andrew

 

[AdrianR]

Back testing with tradesim / metastock

Hi there...there are lots of backtesting packages available, but many of them do not reflect the way you actually trade in the real workd (ie. in a portfolio rather than with a single instrument at a time).

I use Tradesim by Compuvision (www.compuvision.com.au) with Metastock...Tradesim is a true portfolio simulation program. This means that when you make gains or losses on one position, it impacts the total capital in your portfolio that is used for position sizing the next trade.

Back testing by hand is combersome (though it has some value as you get a good 'feel' for the trades and the signals) and it is difficult and time consuming to get a statistically valid number of trades. Tradesim (and other packages presumably) speed up this process and give you a good feel for how the historical performance would have been. This is hugely valueable, because without a big enough sample of trades generated over sufficiently diverse market conditions you can't be sure that your strategy is sound.

The key is to avoid over optimisation and curve fitting...check out books by Pardo or Stridesman for good explanation of the way to go about historical testing / simulation.

Hope this helps

Adrian