How Long Should you Backtest a Trading System? - Traders Log (2024)

FAQs

How Long Should you Backtest a Trading System? - Traders Log? ›

When you are backtesting a day trading strategy (15-minute timeframe or lower), it is usually enough to go back two to three months and start your backtest there. When you are backtesting a strategy on a higher timeframe, you will have to go back 6 to 12 months.

Aim for at least 200 trades in your backtest, but 500-600 offers even greater reliability for informed decision-making. Beware of "Data Fatigue": Excessively long backtests can mislead you by including drastically different market regimes.

A well-conducted backtest that yields positive results assures traders that the strategy is fundamentally sound and is likely to yield profits when implemented in reality. In contrast, a well-conducted backtest that yields suboptimal results will prompt traders to alter or reject the strategy.

On the other hand, if you're trading 1-minute, 5-minute, 15-minute, or scalping trades, limit your backtesting to a maximum of 3-6 months. Going beyond this timeframe becomes excessively time-consuming and will not give you any further edge.

Generally speaking, a good trading expectancy should be positive and ideally above 0.25%. This means that the expectancy ratio is higher than 1, meaning that traders can expect to make more money on their winning trades than they lose on their losing trades.

Evaluating Backtesting Results

When it comes to evaluating the results of your backtest, we can focus on a few important performance and trading metrics. However, it is important to remember that a sample size of at least 30 (ideally 50) trades is necessary to get statistically significant results.

Is TradingView good for backtesting? ›

In summary, TradingView provides powerful tools for both manual and automated backtesting. However, remember that backtesting is just one part of strategy development. Past performance doesn't guarantee future results, so always trade with caution and proper risk management.

This is that a profitable backtest does not prove that a strategy “worked”, even in the past. This is because most backtests do not achieve any kind of “statistical significance”. As everyone knows, it's trivial to tailor a strategy that works beautifully on any given piece of historical data.

A common mistake that many backtesters make is to rely on a single metric or scenario to evaluate their backtesting strategy. This can lead to overfitting, or fitting the model too closely to the data, resulting in poor performance in new or different situations.

Price action may not always be predictable enough and fail to retrace as expected. Such events are known as false breakouts. A premature decision could result in a losing trade, which is why waiting for a retest to validate itself is key.

Backtesting.py is a small and lightweight, blazing fast backtesting framework that uses state-of-the-art Python structures and procedures (Python 3.6+, Pandas, NumPy, Bokeh). It has a very small and simple API that is easy to remember and quickly shape towards meaningful results.

Please note that the maximum length of historical data per calculation is 2 million bars. If the period used for a backtest covers more than 2 million bars, the strategy will execute on the most recent 2 million bars within the selected period.

It is Backtest Calculator For Essential and Plus plan holders, the length of available intraday data is calculated as follows: from now to 6 weeks back multiplied by timeframe(in minutes), i.e. you can go 6 weeks back on the 1-minute chart, 12 weeks back on the 2-minute chart, 30 weeks back on the 5-minute chart, 90 ...

Six months is the quickest; most take longer. If learning part-time, expect to spend a year, or two, or more before making money (not due to luck) trading stocks, forex, crypto, or another asset. See scenarios for how long it takes most people to make consistent money from trading, and why.

Past results are never a fool-proof indicator of future performance. Rather, it's part of doing your due diligence before opening a position. Backtesting will help you to establish how volatile an asset class can become and take the necessary steps to manage your risk.

Please note that the maximum length of historical data per calculation is 2 million bars. If the period used for a backtest covers more than 2 million bars, the strategy will execute on the most recent 2 million bars within the selected period.