Hi all
Hoping you could help me :) (excuse the length)
I plan to manually backtest a trading strategy on a number of different stock charts, doing this one chart at a time. So for example, I'd scroll back to a certain date on an individual stock chart and scroll through each bar, taking signals and making trades as I would usually. I will start with a realistic amount of capital and use the same money management and risk rules I use in live trading/forward testing. At the end, I will take note of whether or not I made or lost money, by what percentage my capital increased/decreased, winning/losing streaks, biggest drawdowns, etc. I will go through this process with as many individual stocks as I can, and each test will be done over a 10 year period with the same start and end dates each time.
However I have a number of concerns/questions about this approach.
Backtesting individual stocks at a time means I can only be in one position in one stock at a time, but in live trading I will be in multiple positions in multiple stocks. Trading in real life therefore increases the number of false signals/losses I can take in a row, as well as my potential max drawdown. I'm having difficulty understanding how testing a strategy on individual stock charts one at a time, can accurately reflect the same results as live trading multiple stocks at at time, as there will be a lot more trades (and possible losing streaks) in live trading.
Or am I viewing it wrong? Should I be looking at each test on an individual stock chart as a scaled down version of what it would be like to run the system with a full portfolio (multiple positions in multiple stocks at a time) and expect a similar distribution of wins/losses, win ratio, drawdowns, profits, etc, over each individual backtest of a stock, only on a smaller scale with less trades?
Another concern is that backtesting a span of 10 years on a separate stock chart isn't an accurate reflection of the money I'd make/lose after 10 years of trading the strategy as its only one stock, and the number of trades I take during the backtest will significantly lower that it would in 10 years of actual trading?
I feel like I may be taking backtesting too literally and expecting exact reflections of my actual trading with it, when it is not possible. Is the point just to prove a strategy has a positive expectancy before you starting trading in it in live markets? Even if this is the idea, I still fail to understand how I could get any accurate reflection of the how the strategy will perform in real life on a portfolio of stocks, by only testing one stock at a time... especially with regard to testing the potential max drawdown encountered.
As you can see I am quite confused about this and can't seem to find any resource that explicitly addresses this issue. If anyone has any insight, or can send me any resources that address this, that would be great.
Thanks again
Hoping you could help me :) (excuse the length)
I plan to manually backtest a trading strategy on a number of different stock charts, doing this one chart at a time. So for example, I'd scroll back to a certain date on an individual stock chart and scroll through each bar, taking signals and making trades as I would usually. I will start with a realistic amount of capital and use the same money management and risk rules I use in live trading/forward testing. At the end, I will take note of whether or not I made or lost money, by what percentage my capital increased/decreased, winning/losing streaks, biggest drawdowns, etc. I will go through this process with as many individual stocks as I can, and each test will be done over a 10 year period with the same start and end dates each time.
However I have a number of concerns/questions about this approach.
Backtesting individual stocks at a time means I can only be in one position in one stock at a time, but in live trading I will be in multiple positions in multiple stocks. Trading in real life therefore increases the number of false signals/losses I can take in a row, as well as my potential max drawdown. I'm having difficulty understanding how testing a strategy on individual stock charts one at a time, can accurately reflect the same results as live trading multiple stocks at at time, as there will be a lot more trades (and possible losing streaks) in live trading.
Or am I viewing it wrong? Should I be looking at each test on an individual stock chart as a scaled down version of what it would be like to run the system with a full portfolio (multiple positions in multiple stocks at a time) and expect a similar distribution of wins/losses, win ratio, drawdowns, profits, etc, over each individual backtest of a stock, only on a smaller scale with less trades?
Another concern is that backtesting a span of 10 years on a separate stock chart isn't an accurate reflection of the money I'd make/lose after 10 years of trading the strategy as its only one stock, and the number of trades I take during the backtest will significantly lower that it would in 10 years of actual trading?
I feel like I may be taking backtesting too literally and expecting exact reflections of my actual trading with it, when it is not possible. Is the point just to prove a strategy has a positive expectancy before you starting trading in it in live markets? Even if this is the idea, I still fail to understand how I could get any accurate reflection of the how the strategy will perform in real life on a portfolio of stocks, by only testing one stock at a time... especially with regard to testing the potential max drawdown encountered.
As you can see I am quite confused about this and can't seem to find any resource that explicitly addresses this issue. If anyone has any insight, or can send me any resources that address this, that would be great.
Thanks again
Backtesting issues
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