This is the first post on the blog and it is a good opportunity to let you know what to expect. Starting soon we will begin a “Getting Started” series of posts aimed at those who are completely new to back testing and perhaps coding or are just starting to get their feet wet in markets.
Often we have an theory of how pattern or strategy will work but little or no evidence to back the hypothesis up. This is where back testing can play a valuable role in weeding out the bad ideas from the worse. It is not just for algorithmic trading either, even discretionary traders can quickly see if there is any statistical merit to their proposed strategy. A lot of time and money can be saved with a little bit of homework.
During this series we will go from discussing some different types of back testing, what software is out there and which platforms you can use. I will introduce what I am personally using and we will get our hands dirty installing a back testing framework, doing a little programming and testing out some simple strategies.
There are people who do not believe in back testing and will tell you that only forward testing has any merit given that markets are constantly evolving. I would say there is merit to that viewpoint but as with most things in life, the truth lies somewhere in the middle. There is a quote, often attributed to Mark Twain (but is debatable) “History does not repeat itself, but it does rhyme“. I would say this sums up my position pretty well. We might not be able to replay the markets note for note but we can certainly make sure we are in key!
Roughly once a week I will be aiming to submit a new post (schedule permitting). I hope you find this series useful.