What do you look for in a backtest result?
- This topic has 4 replies, 3 voices, and was last updated 7 years ago by
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The drawdown is of course high, but the system appears to have some value. The return of 262% on $4000 initial capital is not relevant to me, since the unleveraged actual cost of a contract is around $25000 using that CFD? The amount of trades (372) is good enough. Return is not as relevant as amount of trades (500+), low drawdown (10-15% or lower), and amount of optimization.
I personally would be concerned with the use of moving averages as entry conditions. I use them mostly as filters. But seeing as they don’t seem optimized, it looks alright. It is very easy to curve-fit with MA-crossovers if you optimize the MA periods.
Have you taken into account the spread (which varies with time of day) and overnight fees?
Now the question is, what type of stop is optimal? (ATR-based stop, percentage, indicator exit, time-based stop, trailing stop etc.) Can a higher-period MA or other filter be added? Should position-size be varied to reduce drawdowns? Does this strategy perform positive on other indices?
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Hello Cusack,
the looback period is too short, in my opinion.
You could increase the number of bars to 100.000 or 200.000 and use it as a huge out of sample test. Nicolas has provided some insight into this technique: https://www.prorealcode.com/blog/avoid-equity-curve-fitting-with-probacktest-trading-strategy-optimisation/.
I would expect that a flat year will be a killer for your system. You can try to avoid this with Walk-Forward testing. https://www.prorealcode.com/blog/learning/strategy-optimisation-walk-analysis/
But a huge sample size with a reasonable out-of-sample period is the gold-standard for evaluating a system.
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