More on Trading and the Importance of Backtesting
It was good to see so many people send in the test results on the SPY scale-in test I put up over the weekend. Let’s go one more day to let everyone participate and then I’ll walk through the results and teach you some of the ways to improve your testing using specific platforms and accurate data sources. If you missed it on Thursday, here it is again.
The Art of Properly Backtesting
For those of you who enjoy back testing, or for those of you who are just learning how to back test, I’m going to give you a simple test to run. What I’d like you to do is run the following test and send me the test results. This includes the number of trades, the % correct and the avg. gain per trade.
Here is the test. You’ll test this on the SPY going back to January 1993.
The SPY is above the 200-day moving average.
If the 2-period RSI closes under 25 two days in a row, buy 10% of a position on the close of that second day of the RSI under 25.
If at any time you’re in the position, and it closes lower than your original buy price, buy 20% more
If at any time you’re in the position and it closes lower than your previous buy position (the 20% position) buy 30% more.
If at any time you’re in the position and it closes lower than your previous buy position (the 30% position) buy 40% more getting you to a full position.
The exit is on the close anytime the 2-period RSI closes above 70.
When you send me your test results, also send me your trading platform you tested this on and the data source that the platform used.
There are two great reasons to do this test.
You’ll get a chance to practice testing TPS scale-ins
As a whole, my strong guess is that there will be many different test results sent to me based upon the platform used and the data sources used. From there, I will be able to tell you whether the integrity of your code and data is correct and what you can do to improve upon it.
This is a good test and worth spending some free time doing. Send me your results at.connors@tradingmarkets.com and on Tuesday we’ll look at the key points in order to make your testing as strong as possible.
Special Note – We’ll be conducting our second Day Trading for Success Program beginning next week. The first Program we ran in the spring was successful and we received excellent feedback from the participants.
The Day Trading Program is done in three parts of a two-month period of time and teaches you how to day trade systematically. The cost of the course is $8500 and if you’d like to learn more information on the course we’re having a live online presentation at today and again on Thursday at 4:30 pm.
To register for the free presentation, please call 1-213-955-5858 ext. 1. The Day Trading Program presentation is strictly limited to 15 people and the previous class sold out.