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How long should I backtest a online daytrading system?

online daytrading system,online daytrading

I am frequently asked how long one should backtest a <a href=”http://www.rockwelltrading.com/daytradingcoach/01_dtc_moreinfo.html#STRATEGIES”><b>online daytrading system</b></a>. 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 <a href=”http://www.rockwelltrading.com/daytradingcoach/01_dtc_landing_page.html”><b>online daytrading</b></a> 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 trading 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 trading 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 trading 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.
Published: 2008-01-04
Author: Markus Heitkoetter

About the author or the publisher
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.
www.rockwelltrading.com

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