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? Backtesting Vs Forward Testing

The document discusses the importance of both backtesting and forward testing in trading strategies. It outlines a two-pass approach for backtesting: a fast 'spot-check' to validate setup frequency and behavior, followed by a strict 'rule-locked' test for performance metrics. Key metrics to track include win rate, average R, expectancy, and max adverse excursion to ensure effective execution under pressure.

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nigelisagod810
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4 views2 pages

? Backtesting Vs Forward Testing

The document discusses the importance of both backtesting and forward testing in trading strategies. It outlines a two-pass approach for backtesting: a fast 'spot-check' to validate setup frequency and behavior, followed by a strict 'rule-locked' test for performance metrics. Key metrics to track include win rate, average R, expectancy, and max adverse excursion to ensure effective execution under pressure.

Uploaded by

nigelisagod810
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

🧪 Backtesting vs forward testing (and how to do both without fooling yourself)

You want two types of evidence:

 Backtesting answers: “Does this have an edge when executed correctly?”

 Forward testing answers: “Can I execute it live under pressure?”

Backtesting: do it in two passes (fast → strict)

Pass A: “Spot-check backtest” (speed + pattern recognition)

Goal: validate that the setup occurs often and behaves as expected.

 Sample size: 100 valid occurrences

 Data: at least 3–6 months, same session

 Capture only:

 Did the full checklist happen? (Y/N)

 If entered, did it hit 1R before stop? (Y/N)

 Max favorable excursion (MFE) and max adverse excursion (MAE) roughly

This pass prevents you wasting weeks on a setup that rarely completes or has ugly MAE.

Pass B: “Rule-locked backtest” (accuracy + numbers)

Goal: get real performance metrics with your exact rules.

 Sample size: 50–150 trades depending on frequency

 Rules frozen: entry trigger, stop placement, TP model, session window

 Track at minimum:

 Win rate

 Average R

 Expectancy (avg R per trade)

 Max losing streak

 MAE distribution (tells you if stops are too tight)

 Time-to-TP (prop account consistency & psychology)

A healthy target for many funded styles is something like:

 Expectancy: +0.20R to +0.50R (or more) with clean risk control


Even +0.20R can work if you’re consistent and don’t overtrade.

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