how far back a trading strategy should be profitable to be valid ? - page 2
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I wouldn't call any back-testing strategy valid if it hasn't also passed forward-testing of at least a few months.
And of course I'm assuming you are testing on a custom symbol with 100% history quality tick data and not on broker data...
Hi, i got a few strategies developed and coded by me, i test them to be profitable for the last 7 years (2018-2024 included). i now have a strategy in my hands that is decently profitable 2016-2024 but is not profitable 2012-2015, is that a reason to not take it into consideration? In my mind is the fact that back then the trading conditions and the way the market moves were very different . what is your opinion?
Just so that you have something to compare .
My strategy works for last 16 years of backtest.
Only if it passes all crises from 2008 , only then take the risk to trade it live.
I also have a 8 years of forward test.
Just so that you have something to compare .
of course not , 2020 changed almost everything when it comes to safe heavens , indicies and even currencies . The volatility is different and also the tendency of some instruments, but nobody says we can't go back to that regime of trading that was present in the past.
Yeah, it does shook the market. Do you think that we will ever have pre 2020 trading era back?
Hi, i got a few strategies developed and coded by me, i test them to be profitable for the last 7 years (2018-2024 included). i now have a strategy in my hands that is decently profitable 2016-2024 but is not profitable 2012-2015, is that a reason to not take it into consideration? In my mind is the fact that back then the trading conditions and the way the market moves were very different . what is your opinion?
As i trade in 1min chart or 1440x7 bars, For me if something is giving 70% accuracy in last 7 days of chart, that is enough for me.
If your strategy involves daily or weekly chart then it must be requiring longer data
Market moves based on adaption of new technologies. Market movers dont have time to initiate a trade from their computer or smartphone, they rely on algos.
Study what changed recently, Neural networks and other advanced technology or superpower that is far from reach of retail traders.
What is your take on that that people still follow old concepts Micheal Jenkins, Patrick Mikula or WD Gann concepts when they have something better than that? In the era of WD Gann, there was no technology such as seconds chart available to trade realtime, now we have it! Volume footprints, Time price opportunity and many other advanced concepts for documenting price history has been developed and strategies are being optimizing based on advancements,
However what keep working and will keep working forever is those type of strategies which are based on mathematical formulas such as averaging, pyramiding type which involves no requirement of study of historical price data. But if your strategy requires studying candlesticks then you should always be prepared for new adaption of methods and technologies rather than looking for very old price data. Market mover's strategies are not available publically so what is working on recent chart is all that matters, according to me.
Hi, i got a few strategies developed and coded by me, i test them to be profitable for the last 7 years (2018-2024 included). i now have a strategy in my hands that is decently profitable 2016-2024 but is not profitable 2012-2015, is that a reason to not take it into consideration? In my mind is the fact that back then the trading conditions and the way the market moves were very different . what is your opinion?
Good question! I’ve gone back and forth on this myself. Personally, I think it depends on what kind of inefficiency the strategy is based on and whether that inefficiency has existed for a long time or is just something recent.
I run two different types of backtests:
The reason? Markets change a lot—there are different volatility regimes, central bank policies, and shifts in how money flows. But some inefficiencies have been around forever. A lot of top hedge funds and traders have been using the same basic principles for decades.
If a strategy works from 2016 onwards but fails from 2012-2015, I wouldn’t immediately discard it. I’d first try to figure out why it didn’t work in those years. Was it just a different type of market environment? Or is it a sign the strategy isn’t robust?
For me, a strategy doesn’t need to be profitable in every single year of history, but it should make sense across different types of market conditions. I also check my strategies against research papers and observations from successful traders—if something has been working for 30+ years, there’s a good chance it’s built on a real edge.
Looking forward to your thoughts!
Good question! I’ve gone back and forth on this myself. Personally, I think it depends on what kind of inefficiency the strategy is based on and whether that inefficiency has existed for a long time or is just something recent.
I run two different types of backtests:
The reason? Markets change a lot—there are different volatility regimes, central bank policies, and shifts in how money flows. But some inefficiencies have been around forever. A lot of top hedge funds and traders have been using the same basic principles for decades.
If a strategy works from 2016 onwards but fails from 2012-2015, I wouldn’t immediately discard it. I’d first try to figure out why it didn’t work in those years. Was it just a different type of market environment? Or is it a sign the strategy isn’t robust?
For me, a strategy doesn’t need to be profitable in every single year of history, but it should make sense across different types of market conditions. I also check my strategies against research papers and observations from successful traders—if something has been working for 30+ years, there’s a good chance it’s built on a real edge.
Looking forward to your thoughts!
Hi, firstly, thanks for your response!
Usually my strategies are not based on indicators , out of 4 main strong strategies, only 1 has a simple EMA to filter the trend, the rest of them have no indicators , the strategy i was talking about in my post is a simple reversal strategy for forex pairs(no indicators used) , i based my edge on the fact that fx pairs are choppy and usually reverse a lot, so in the periods that this strategy doesen't work means that the market was plain continuation or the volatility was a lot different, so i have some logic behind the strategy itself and i understand why it's not working in certain periods , i usually download OHLC data in excel from that period and see for myself if there is an change in volatility and behaviour of the market. So in case let's say the fxpairs stop being choppy and reversal and start to show continuation , then my strategy would lose constantly but small , the market data would let me know if i should "retire" the strategy in question, and also show me opportunity for continuation strategies.
i based my edge on the fact that fx pairs are choppy and usually reverse a lot, so in the periods that this strategy doesen't work means that the market was plain continuation
Considering market choppy behaviour is too random it is way more difficult to trade it. I find it easier to trade when there is momentum in market driven by news release. Just sharing my experience.
Lol, I have a friend who shares the same philosophy - his signals/accounts are a comedy show (rather a tragedy).
Optimization doesn’t assume your logic is always valid - it just finds the best parameters for past data.Whether they hold up in the future - is a different question (that’s what forward-testing is for).
MT4/MT5 Tester is a powerful tool, not a belief system. Ignoring Tester entirely is like refusing to use a microscope because you think all bacteria behave the same way.
I wouldn't call any back-testing strategy valid if it hasn't also passed forward-testing of at least a few months.
And of course I'm assuming you are testing on a custom symbol with 100% history quality tick data and not on broker data...
Are you factoring in real fluctuations, spreads in live conditions?