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How Long Should I Backtest A Online Daytrading System?
By Markus Heitkoetter:Rockwell Trading
I am frequently asked how long one should backtest a online daytrading system. Though there's no easy answer, I will provide you with some guidelines. There are a few factors that you need to consider when determining the period for backtesting your online daytrading system:
Trade frequency
How many trades per day does your daytrading system generate? It's not important how long you backtest a daytrading system; it's important that you receive enough trades to make statistically valid assumptions*: If your online daytrading system generates three trades per day, i.e. 600 trades per year, then a year of testing gives you enough data to make reliable assumptions*. But if your system generates only three trades per month, i.e. 36 trades per year, then you should backtest a couple of years to receive reliable data.
Underlying contract
You must consider the characteristics of the underlying contract. The chart below shows the
average daily volume of the e-mini S&P:
It doesn't make sense to backtest a system for the e-mini S&P before 1999, because the contract simply didn't exist! In my opinion it doesn't make sense to backtest an e-mini system before 2002 because at that time the market was completely different; less liquidity and different market participants. I believe that a reliable testing period for the e-mini S&P are the years 2002 - 2004. Markus Heitkoetter is a 19 year veteran of the markets and the CEO of Rockwell Trading. For more free information and tips and trick how to make consistent profits with online daytrading , visit his website www.rockwelltrading.com.
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