While developing a strategy through the "Workshop" menu, after creating rule groups and making your trade settings, you can measure the performance of your strategy based on a maximum of 1 year of historical data with "Backtest". If you wish, you can make updates to your strategy according to the Backtest results, and you can also view the results of your previous backtests.
What is Backtest and How Does It Work?
The backtest method is to run the strategy on the historical data of a selected pair and results obtained to the user in an analytical form. In this way, the effects of a change in the strategy can be observed.
The rules created are calculated according to all price movements in the past. The transaction record is logged for the price at which the desired conditions of the rules are fulfilled and the exit rules are checked. New buy rules are not executed until a position is closed.
How to Evaluate Backtest Results?
When evaluating backtest data, there are a number of points that should be considered:
Lack of Prospective Data: The backtest method uses historical data. Changing market conditions, unexpected events or manipulations may occur during realtime market and actual trading results may differ significantly from backtest results.
Data set: When backtesting, the accuracy of the data set used is of great importance. The data to be used in backtest analyses are data on actual transactions recorded at certain periods. In this case, there may be a sensitivity difference between the instant data and the backtest data.
Overfitting Risk: The risk of overfitting may arise when the backtest is used to adjust strategy parameters based on available data. Overfitting may cause the strategy to overfit historical data and fail in the future. Therefore, backtest results should be carefully evaluated and tested in different market conditions.
Commissions and Costs: Backtesting may ignore commissions, spreads on the orderbook and other transaction costs that may be incurred. These costs can significantly impact real-time trading results, which may result in discrepancies between backtest results and actual performance.
Repaint: The repaint problem can make backtest results misleading. While the past performance of indicators may look really impressive, it may not perform the same when used to predict future price movements. Therefore, relying on backtest results with an indicator that has encountered a repaint issue can be risky. At this point, the presence of a "Open Bar" rule in the Traderlands strategy designer and some of the indicators might increase the chances of repaint.
Conclusion
These points should be taken into consideration when evaluating backtest results. It is not enough to rely on backtest results alone when predicting actual trading results, as it is important to note that strategies and market conditions can differ from the test. It is therefore recommended to utilize the livetest feature on Traderlands to test strategies on real-time data for FREE.
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