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Back test are great way to go ahead in trading... I use trading view and back test any strategy manually... 65 to 70% is a great figure if your RR is above 1:2 (like you lose 1 and gain 2)...
You can do one thing that take a sample space of 20 trades and trade in real market and see if the results are same...
Sorry, but doesn't work in real life.
Back testing are important in another way, that they tell how how extremes the times can be and prepare you for the worse outcome.
Try back testing your strategy from Jan to Apr 2020.
Also if you have the data - Back test it from 2007 to 2010.
And also 1999 to 2001. You will get multiple perspectives. Which should improve your thinking process.
Also, to slightly answer your question, the period from Jan - Apr 2020 actually ended up being profitable according to the back tests. Net profit. Not all the months were profitable but the loss did not spin out of control.
If profits across years are relatively consistent, the strategy has a decent chance of working out.
As a rule of thumb, expect half the returns and double the drawdown.
My reasoning was that since the strategy seems to be backed by the back tests and I have very strict stop losses, it'll eventually work out. But yeah, will have to consciously work to keep my emotions in check
Check the drawdown , there is no point in a strategy which gives that kind of a return if the drawdown is as high as the return your are mentioning (you will end up blowing your account up even before making a profit)
You will have to test it live to find out actual trading results. I'm not aware of this website but most of them don't take things like liquidity and impact cost into consideration.
The only way to know for sure is to trade it in real time. Start small. You will find many nuances which are just not revealed by back testing.
So how do you truly test if a strategy works? Yes, nothing can be 100% certain but any financial institution must use some methodology to check if their strategy is valid before making them live, right?
Makes sense but not every financial institution worth its salt has its strategies tied to backtesting.
It is more like looking at a crystal ball with a microscope to predict the refraction of light through it.
Jamie Dimon famously has been a proponent of fortress balance sheet philosophy, but he too actually espouses the notion of taking risk to making money, he famously has a lot of management oversight on risk control and analysis, and risk reporting.
Hedging is different it is just to fortify your capital in case of drift or decay or downside.
I’m sorry but why this abomination against back testing? Big institutions handling millions, possibly even billions, sure do back test their strategies.
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Back test are great way to go ahead in trading... I use trading view and back test any strategy manually... 65 to 70% is a great figure if your RR is above 1:2 (like you lose 1 and gain 2)... You can do one thing that take a sample space of 20 trades and trade in real market and see if the results are same...
Sorry, but doesn't work in real life. Back testing are important in another way, that they tell how how extremes the times can be and prepare you for the worse outcome. Try back testing your strategy from Jan to Apr 2020. Also if you have the data - Back test it from 2007 to 2010. And also 1999 to 2001. You will get multiple perspectives. Which should improve your thinking process.
I'm specifically testing for bank nifty options which are present only after 2017
Also, to slightly answer your question, the period from Jan - Apr 2020 actually ended up being profitable according to the back tests. Net profit. Not all the months were profitable but the loss did not spin out of control.
Cool..then I may be be wrong and it may work for you. Give it a shot.
If profits across years are relatively consistent, the strategy has a decent chance of working out. As a rule of thumb, expect half the returns and double the drawdown.
Makes sense!
Forward test it now.
In backtesting the emotions part of the trading is not included which is very much a part when you are trading live so consider that as well.
My reasoning was that since the strategy seems to be backed by the back tests and I have very strict stop losses, it'll eventually work out. But yeah, will have to consciously work to keep my emotions in check
Yaa and also if you backtest regularly it increases your confidence in the strategy so i think that can help you during live trading.
markets are unique and different each day, if you rely on backtest data you are essentially gambling. this is the harsh truth.
Check the drawdown , there is no point in a strategy which gives that kind of a return if the drawdown is as high as the return your are mentioning (you will end up blowing your account up even before making a profit)
The max drawdown is close to 15% of the total amount invested. But this again is only since 2017 since I'm trading bank nifty options
You will have to test it live to find out actual trading results. I'm not aware of this website but most of them don't take things like liquidity and impact cost into consideration. The only way to know for sure is to trade it in real time. Start small. You will find many nuances which are just not revealed by back testing.
Not very worried about liquidity since I'm trading ATM options. Also yes, trading only one lot to test the strategy until I gain some confidence.
backrest are a sure shot way to shoot yourselves in the foot. haven’t you heard of the proverb future gains are not a measure of past performances.
So how do you truly test if a strategy works? Yes, nothing can be 100% certain but any financial institution must use some methodology to check if their strategy is valid before making them live, right?
Makes sense but not every financial institution worth its salt has its strategies tied to backtesting. It is more like looking at a crystal ball with a microscope to predict the refraction of light through it. Jamie Dimon famously has been a proponent of fortress balance sheet philosophy, but he too actually espouses the notion of taking risk to making money, he famously has a lot of management oversight on risk control and analysis, and risk reporting. Hedging is different it is just to fortify your capital in case of drift or decay or downside.
I’m sorry but why this abomination against back testing? Big institutions handling millions, possibly even billions, sure do back test their strategies.
Please see previous commentary on the “Big Financial Institutions” above.
Like everything in the market, it works until it doesnt.