In this episode of Truth About FX, Walter gives away some very reliable points how to get the most of your backtesting data. He talks about market segments, market types, and currency pairs…so what do all these have to do with your backtesting?

Walter affirms the need to look at different point of views and the importance of forex testers. All this and more here in this episode…

Download (Duration: 04:16/ 4.89 MB)

In This Episode:

00:42 – hire someone

01:56 – pull sections out

03:20 – take snippets

Tweetables:

What style of market are you in? [Click To Tweet].

Capture different styles of markets.  [Click To Tweet].

Take snippets of different pairs that you’re trading.  [Click To Tweet].

Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.

Hugh: Hi, Walter. I’ve got this question recently. This person says, “I want to backtest a day trading system” — I think it’s a scalping system, to be specific — “but there’s no way that I’m going to test 16 years of data for every currency pair. What do I do to make sure that I am getting a good backtest?”   

Walter: Okay. Maybe you can hire someone else to do the backtest then hire them to do trading for you. I don’t know. It’s like saying, “Hey! I really, really want to be a brain surgeon but I just don’t want to go to medical school. What am I going to do here?”

I don’t know what to tell you you’ve got to earn it somewhere. Here’s what I would say — all silliness but that’s really kind of. This is what the person is saying, “I want to do the scalping system and I want to verify it but I don’t really want to do the work that is involved when I verify it.”

You could do an automated backtest but that doesn’t make a lot of sense because you have data problems in most cases and you also — if you’re going to be trading it manually which is what it sound like — you probably do not want to do an automated backtest because you probably going to be trading it differently than the computer would.

The other thing is, 16 years of data. So, let’s say for every currency pair, this is what you could do; you could take some random sample periods. Let’s say, you want to trade on the EUR/USD, the JPY/YEN, the CAD/USD and the AUD/NZD.

Let’s say those are the ones that you want to do. What you might do is you might pull sections out. You go, “Okay. We’ll, see what it’s like trading it on the EUR/USD from December 2013 to March 2014 and then see what it is like trading it, that same system on the EUR/USD July 2006 to December 2006.”

So, you take segments and what you want to make sure that you’re doing here is  you are capturing different styles of markets like different seasons, so to speak, trending markets and directionless markets.

You want to see volatile markets and quiet markets, you want to make sure that you’re taking snippets of periods that you’re testing.