"If You Haven't Back Tested
Your System, Using TradeSim, You Might As Well Be Trading With Your
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From: David 'The MetaStock Exper' Jenyns
If you're wanting to be a successful trader
let me impress upon you the importance of back testing your system. I believe it to be one of the most critical steps in designing
any trading system and here's why.
Dr. Van Tharp in "Trade Your Way To Financial Freedom"
describes the 3 components of successful trading to be: the system,
money management & your psychology. The only way
I know to improve all 3 components is through backtesting.
Here's how backtesting directly impacts each component:
1. The System: Backtesting allows you to find out
if and how profitable your system truly is, even before you risk
a cent. You can also test different variables to identify the most
2. Money Managment: Backtesting allows you to discover
which money management model works best for your system, further
demonstrating the importance of having these rules in place.
3. Psychology: Backtesting is guaranteed to increase
the confidence you have in your own system. Not only will you prove
you're trading a winning system (making it easier to follow) but
you'll have the metrics to back it up.
Backtesting really is what gives professional traders their edge! Sadly, even though
it's most important, it's one of the least understood areas of trading.
Worse still, as I illustrated in my article "Upgrading Metastock",
MetaStock just isn't up to the task of back testing your trading
systems. Watch the video below to see what I mean.
With all that said and done, there is a solution and it is by far
the best backtesting system I have ever seen. TradeSim
is the first realistic true portfolio trading simulator and back
tester available for Metastock.
By David Samborsky |
Director of Compuvision
- makers of TradeSim.
Whatever technical analysis criterion you use to trade with, be
it moving averages, candle sticks, volatility breakouts, fibonacci
retracements or any other trading system you have devised you're
going to need to back test your trading system thoroughly and objectively
in order to remove any possible doubt about it's capability.
To remove any self-doubt you need to thoroughly back test or simulate
your trading system in such a way that it matches the conditions
under which it will be traded. Once you have established that you
have a reliable and robust trading system, only then will you be
confident in trading your system.
The Importance of Back Testing
When trading what is the question in most traders mind? To answer this question I shall quote the introduction from Chapter 8 Back Testing of Mark Juriks book "Computerized Trading".
"Will my trading strategy be profitable? After having gone through the arduous process of crafting a trading strategy, this is the question you must ask yourself."
The ability to answer that question is the great promise that back testing holds out for all traders. A successful back testing procedure will greatly reduce the probability that you will begin trading with either an unprofitable strategy or one that does not meet your expectations. By adopting a sound and rigorous back
testing approach, you will: - Pinpoint which approaches to the market that are likely to be successful and which ones are not.
Generate good estimates of future performance for each trading strategy you test.
Create a record of your trading strategy's historical trading performance.
Produce data necessary for other components of your trading approach
such as your asset allocation strategy.
Important Trading System Criteria
Profitability is not the only criteria by which a trading system should be evaluated. Drawdown and stress should equally be considered as well... for example, before you open a trading account:
- Are you satisfied that your system is reliably profitable?
- Will drawdowns wipe out your account?
- Is your system trading in a way you can tolerate?
- Can you tolerate long periods of no trading or too much trading?
- Can you tolerate a large string of losses?
The only way to answer these questions is to subject your trading
system to extensive back testing.
Discover The Flaw In MetaStocks Enhanced System Tester
Unfortunately MetaStocks system tester leaves a lot to be desired when it comes to realistically and objectively testing the performance of a trading system.
Even though the Enhanced System Tester tests multiple securities in one batch, Metastock treats each security independently of the other. In other words, when Metastock tests the first security, it uses your predefined float and takes the trade over the test period selected. Once completed, it repeats the same process for the second security, using the same initial float, with no reference to the first securities traded.
The consequence of this type of testing is that you receive the
same result as you would if you simply tested each security individually
and added the results together. Not only is this process dreadfully
slow, but the question of the performance of the trading system
still goes unanswered. The trader then has to trade the system with
a lack of confidence and a certain amount of self-doubt.
Lack of Confidence
Lack of confidence usually forces traders to question their own trading systems with a temptation to continually modify it with devastating consequences. This temptation is usually spawned by a string of losing trades or an opportunity to replace their trading system with a whiz bang indicator that was talked about on a traders chat forum which seems like the answer to all traders prayers.
Anything that sounds too good to be true will attract the attention of a trader who is not satisfied with their own trading system simply because they have not properly tested their system in the first place and have not built up the necessary confidence needed to successfully trade it.
In the end these negative subconscious thoughts will only hinder
and destroy your ability to trade successfully. To improve your
confidence in your trading system you need to thoroughly and objectively
back test it - simple as that! Only then will you be confident enough
to commit time and money to it!
The Trader's Dilemma
How can we test how a trading system will perform over a period of time when trading an arbitrary group of securities?
TradeSim is the first realistic
true trading simulator/analyzer for Metastock that can quickly back-test
and evaluate a trading system across a portfolio of securities. With its powerful data processing capabilities TradeSim
can evaluate the historic performance of a given trading system
within a matter of minutes and do it with a realistic representation
of a real-life trading scenario. Whether a single security or a
multiple security portfolio, TradeSim answers the simple question:
"What would have happened if this system had been traded in
the past using an arbitrary portfolio of securities?"
Sounds simple - but it is extremely complex if not impossible to
do with Metastock as it stands. However, with TradeSim it is just
a simple matter of running a Metastock exploration on a portfolio
of securities using your own set of indicators. When the exploration
has finished you just simply run TradeSim and analyse the resulting
Here's what a couple of traders like you had to say about TradeSim:
read dozens of books on trading, subscribed to various newsletters
and attended countless seminars so I thought I knew it all.
That was until I purchased Tradesim Professional and boy was
I in for a real shock. Believe me when I say this, tradesim
is the best teacher by a long mile..."
J.B - Washington,
have been using Tradesim quite extensively. One thing that
it has taught me is the fact that most trading systems do
not work. Even most of them that are meant to be used in certain
market segments like commodities e.g. Although some of them
are positive, they are not very good overall."
E. K.- South
You are probably not aware that to approach the functionality and power that TradeSim adds to Metastock you would need to spend many thousands of dollars more than the combination of both packages put together. Even then, competing packages fall quite short when it comes to analysis power and options as well as simplicity of operation. TradeSim was built right from the ground up with the professional trader
in mind! TradeSim is the first realistic true
portfolio trading simulator and back tester available for Metastock.
For the first time you can back test your trading system the way
you would trade it and objectively analyze its performance without
any of the limitations of MetaStock!
interested in purchasing TradeSim now
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