How to backtest trading system ?

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mops

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Hello.
I'm a noobie trader and so far i managed to get 5k forex demo account down to about 4k in one month. I'm not too happy with the result, but anyways....

I read about several trading systems, includig rapirforex, amazing forex system, surfing, 123-froex, surefire forex trading and explosive profits to name few.

I would like to test those system, and any other systems i may find using historical market data. I'm primarly looking for a success ratio for ach system. I did some searching on the net, but i cant locate anything anything 'constructive'.
What software would i need to do that ? Where would i obtain histirical forex market data ? Any particular websites i should chack out ???
thanks in advance.
 
dageshi said:
www.wealth-lab.com

Good backtestting software, you'll need to do some programming in order to use it tho (as programming goes its not that scary)
Click to expand...
There is a lot of discussion on trading websites about the topic of backtesting. This intrigues and perplexes me enormously. There is also a lot of discussion relating to systems.

What are these systems you are talking about ?

It seems to me you may be talking about verifying the efficiency of a particular software.
Is that correct ?

It also seems to me you may be discussing the merits or demirits of particular methods.
Is that also correct or not ?

Any offers ?
 
SOCRATES said:
There is a lot of discussion on trading websites about the topic of backtesting. This intrigues and perplexes me enormously. There is also a lot of discussion relating to systems.

What are these systems you are talking about ?

It seems to me you may be talking about verifying the efficiency of a particular software.
Is that correct ?

It also seems to me you may be discussing the merits or demirits of particular methods.
Is that also correct or not ?

Any offers ?
Click to expand...


Yes, I'm trying to test the system on the historical data to find ut how accurate it is in the long run. System is not a software. It's a trading system, i.e. it's supposed to point out good buy/sell signals with highest possibly accuracy based on technical analysys.

And, BTW, i'm a programmer by education, so programming is not a problem for me ;)
 
SOCRATES said:
There is a lot of discussion on trading websites about the topic of backtesting. This intrigues and perplexes me enormously. There is also a lot of discussion relating to systems.

What are these systems you are talking about ?

It seems to me you may be talking about verifying the efficiency of a particular software.
Is that correct ?

It also seems to me you may be discussing the merits or demirits of particular methods.
Is that also correct or not ?

Any offers ?
Click to expand...

I can't speak for other posters, I personally use backtesting software as a means of testing and learning about different strategies. I am also a programmer by trade so it's a fairly familiar and comfortable way of me testing ideas against genuine data.
I don't presume that just because a strategy worked in the past it will work in the future but I would assume it has a greater chance of doing so.
 
Right.....I can now more clearly see the angle from which you are tackling this. Thanks.
 
I don1t know what you are on about. All I am interested to hear is all about this backtesting stuff.
What it is, why it is, how it is done, when where how and for what reason.
 
Those of us cursed by the inability to travel through time use it to analyse past market behaviour in an occasionally-successful attempt to find non-random stuff happening which may repeat itself in the future. I trust that will answer almost none of your questions.
 
Thank you for your prompt and kind reply. It may or may not occur to you that in every arena of commerce, if something is found to work satisfactorily in the past, there is a temptation to repeat it in the future. I can do the second part, I am interested to hear how everybody else achieves this in the first part.
 
Socrates
As triax suggests there are traders, myself included, who have yet to find the ability or prefer not to walk on 'The Dark Side' (My understanding of this Dark Side is that with the benefit of considerable market experience and much hard work, one is able to identify & stick to a profitable trading plan using only the price as shown on a chart in front of the naked eye - I hope i'm not too far from the mark).
What we prefer to do is use software such as TradeStation, MetaStock etc. in order to devise technical trading strategies, using not only price, but also as many technical indicators as you could shake a stick at. Once we have defined our strategy (or 'system') we can then backtest it using historical data, to see wether or not it would have worked in the past, and what profit/loss we would have made. If done properly, this can help us predict the likelyhood of it continuing to work in the future.

Once a system is decided upon, the software will then give us buy & sell signals as they occur in real time, in order that we can trade the system accurately going forward.

Given all your experience, i'm surprised that you're not at least aware of the concept, if not totally familiar with it, or perhaps i have misunderstood your questions? There is a very good article in T2Ws' Knowledge Lab, titled 'Developing a Trading Strategy' which will give you a thorough understanding of how to develop a basic system. If you'd like further info you could try TradeStations website: http://www1.tradestation.com/default_2.shtm.

Personally, I feel I am able to identify profitable trades simply by studying charts, but find that i'm forever trying to find alternative ways to trade which results in me losing focus and missing the trades I 'know' & messing up the new ones i'm trying. System based trading gives me the discipline to follow my strategy accurately, whilst allowing me to backtest new ideas and finetune/discard them as necessary, without putting my money on the line.

I hope this helps
Simon
 
turtle trader said:
there are traders, myself included, who have yet to find the ability or prefer not to walk on 'The Dark Side'
Click to expand...
turtle trader said:
What we prefer to do is use software such as TradeStation, MetaStock etc. in order to devise technical trading strategies, using not only price, but also as many technical indicators as you could shake a stick at.
Click to expand...
And then of course there's the rest of us, the perhaps 60% (? ... I'm guessing, of course) of us in-between these two groups. The people who wouldn't dream of using anything called TradeStation or MetaStock to devise anything, and are pretty cynical, most of the time, about most "indicators", but on the other hand are certainly not Darksiders.
 
Roberto said:
And then of course there's the rest of us, the perhaps 60% (? ... I'm guessing, of course) of us in-between these two groups. The people who wouldn't dream of using anything called TradeStation or MetaStock to devise anything, and are pretty cynical, most of the time, about most "indicators", but on the other hand are certainly not Darksiders.
Click to expand...

There are of course an infinite number of trading styles/methods - I actually prefer to keep my indicators to a minimum, but find the ability to back test ideas (with or without indicators) accurately helps me (or rather is the only way for me) to stick to the plan that I have made.

Perhaps being cynical is another reason why I use TradeStation - if I have doubts about whether an idea, or someone else's suggestion would actually work, then I am able to test it for myself before dismissing it, as the 'un-armed' cynic would surely be forced to do :!:

Simon
 
turtle trader said:
Socrates
As triax suggests there are traders, myself included, who have yet to find the ability or prefer not to walk on 'The Dark Side' (My understanding of this Dark Side is that with the benefit of considerable market experience and much hard work, one is able to identify & stick to a profitable trading plan using only the price as shown on a chart in front of the naked eye - I hope i'm not too far from the mark).
What we prefer to do is use software such as TradeStation, MetaStock etc. in order to devise technical trading strategies, using not only price, but also as many technical indicators as you could shake a stick at. Once we have defined our strategy (or 'system') we can then backtest it using historical data, to see wether or not it would have worked in the past, and what profit/loss we would have made. If done properly, this can help us predict the likelyhood of it continuing to work in the future.

Once a system is decided upon, the software will then give us buy & sell signals as they occur in real time, in order that we can trade the system accurately going forward.

Given all your experience, i'm surprised that you're not at least aware of the concept, if not totally familiar with it, or perhaps i have misunderstood your questions? There is a very good article in T2Ws' Knowledge Lab, titled 'Developing a Trading Strategy' which will give you a thorough understanding of how to develop a basic system. If you'd like further info you could try TradeStations website: http://www1.tradestation.com/default_2.shtm.

Personally, I feel I am able to identify profitable trades simply by studying charts, but find that i'm forever trying to find alternative ways to trade which results in me losing focus and missing the trades I 'know' & messing up the new ones i'm trying. System based trading gives me the discipline to follow my strategy accurately, whilst allowing me to backtest new ideas and finetune/discard them as necessary, without putting my money on the line.

I hope this helps
Simon
Click to expand...
No, no you have not misuderstood my question and in fact what you explain is very helpful.

As in classical darksiding we do not use these methods, therefore I am only interested to know how different people approach the subject. All of the juourney through this maze is a quest for the acquisition of knowledge. The different paths that people take is very interesting even though the contrasts are stark.

You are quite correct in your assesment of darksiding. It is not easy at all and not for everyone. No one in his right mind would opt for the most difficult route if he percieves an easier route is available to him. This is normal.

Thanks for your reply. It is much appreciated.
 
Hi mops,

I have also come across rapidforex, you say you want to backtest their system(s), the problem is you have to pay for their systems first. The full package is around $297. Am I correct in assuming you have already paid for the system?

Another system that has had rave reviews is provided by Rob Moubray in his book: Guide to Day Trading the Forex. This system is based on using the CCI.

It will be interesting to know your results of your backtesting.

Cheers,

Brownie
 
Candlestick patterns...

Hi mop,

My 2cents: backtest as much you want, but learn the psychology behind price actions. It's all about OHLC. Put them together, and you could get some clue about where prices might go. Combine it with your favourite indicator(s), and you have a good system to start with. Although it is not a perfect system, but it is powerful if you master it. At the moemnt, I am trying to master it. Could be a life long, but the journey is very challenging, as long as you don't drop the towel :cool:

A good start is Steve Nison , and litwick.

Good luck,

frank

p.s. forgot to mention FXstreet.com.
This T2W's thread has excellent forex daily analysis. It is good to have a technical/fundamental overview of the market from the experts before trading.
 
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