Jon at Defender
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 Posted:
Wed Nov 09, 2005 9:01 am Post subject:
The Backtesting Trap (and how to avoid it) |
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Conflict of interest statement: I have something for sale that is
related to this topic.
Background statement: I traded futures from 1992, and started a
company in 1997 that became a CTA and did trading for others. Once
upon a time, back when the world was Usenet and not Google, I hung out
in misc.invest.futures and yelled and screamed in the name of The
Truth. I eventually left after I got tired of causing pain, and after
realizing that it didn't actually matter whether some people were
shell-gamers. Now, I pretty much just keep to myself; my online
brawling days are over.
Content statement: Backtesting is a common practice. Technical
traders everywhere are doing it. What traders everywhere seem to be in
denial about is that backtesting pretty much always accomplishes the
opposite of what people hope for. It doesn't prepare you for the
future. It makes you vulnerable to it. I've got some compelling
arguments about why it's a bad idea, and an idea for how to fix it.
"WTF, where's the article???" statement: After I reviewed it and
realized it was six pages long, I PDF'd it and stuck it on my web site.
Didn't figure it would be kosher to post it here, but I will if people
really want to see the whole thing in ugly Google Group type. I will
submit it to TASC, but I'm not sure they'll take something this size.
We'll see. Meanwhile, if you want to read it in nice format, it's
here: http://www.defendercapital.com/backtesting.pdf
Don't live in the past. Don't bury your head in the sand. Balance
yourself to meet the unexpected future. Go read that doc!
Regards,
Jon Matte (once, Troutman, Defender of Sticks)
Defender Capital Management, Inc.
http://www.defendercapital.com/
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