I see many systems and EAs described here, but it seems almost none has included an equity curve or performance sheet from a backtest. I wonder if people really trade untested systems? How can you know that it is profitable without a backtest over at least 4 years? An in-sample backtest is no guarantee for profit, but a missing backtest seems to me a certain recipe for loss.
Why don't you backtest your system?
I dont think, that 4 years backtest is neccessary, but at least one year would be nice. But i do agree with your point. People are not posting backtest results probably because most of the system arent algos and are only manually traded.
I think 1 year is not enough. This is a backtest of a system posted here, Hucks Trend Catcher 3:
It was only 5 minutes to write a script of this system and backtest it, and then you see that it is an unprofitable system. But when you backtested it only one year in 2011, it would look profitable. Only over 4 years you can see that it loses most time.
Problem is that even when you trade a system only manually, you can not know if it's profitable without a backtest. I would not manually trade something without backtest.
I believe the reason why we dont see a lot of backtested results on here is that people dont have the needed software skills to pull it off. If I am able to master the C properly, I will start a thread where I write algos for the popular mechanical systems on here and do the backtest. Atleast one system a week should be interesting
Quote Originally Posted by liftoff View Post
I believe the reason why we dont see a lot of backtested results on here is that people dont have the needed software skills to pull it off. If I am able to master the C properly, I will start a thread where I write algos for the popular mechanical systems on here and do the backtest. Atleast one system a week should be interesting
True.
The other answers to the reason why backtesting is hardly done :
-Traders haven't fully settled down on their trade logic as a trader. This is not a system issue, but a trader issue.
-Depends on your perception and belief system regarding the market. If you think the market is random, then you might think backtesting is unnecessary. If you think there are certain patterns in the market and will continue to do so in future, then you might take a little effort and time to do so.
-Insufficent research regarding the market (very impt point IMO). Backtesting is only a small part of the research.
-Even if the trader knows programming + has good trade logic that actually works, thinking of a correct and impartial model and pseudo-code can be a big hurdle. This is especially true with complex and deep trading systems. Without this, the trader's logic cannot be translated into actual working code. In this stage, potential flaws of the trader's logic can be exposed! (which is actually a good thing.
-Experienced traders who are so successful to the point, that they can't be bothered to learn how to do backtesting at their stage of the game (either because computers and software are not available to them during their time or they feel programming is difficult even they did tried). So to them, a backtest can mean e.g. a week's work trading on a smaller sized account, then manually testing further from 6 months to a year. Their vast experience of knowing vast market conditions makes up of the lack of backtesting (can both a good and bad thing).
-Even if one does backtesting, one should not mix money management into in. To mix money management into it would blur the definition of 'system'. Heck, some traders even think MM is part of a trading system; it is not as :
1-the issue of MM is always personal
2-you can have a bad system, but good MM make up for the losses. This is dangerous as it gives the trader a misconception that the system is good.
3-you can have a good system, but with poor MM. Then this is no longer a system issue, but a trader issue. The other side of the coin will be questioned : is the system really that good? When the real problem is the trader!
Therefore backtests should be objectively measured by pips (objective), not equity curves (subjective).
Here you go. My side of things after doing a lot of my own work regarding backtesting / systems design / programming / trading and price action research.