How to Cheat the Backtest

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Many traders are unaware of ways to cheat the backtest engine. There are several factors to consider before trading when you stumble upon an amazing backtest and are tempted to trade the strategy right away. This is a quick way to blow up your trading account.

The first way to generate a FALSE but awesome looking backtest, is to use a bar type that does not reflect the true price.

Take the built in Renko bars in NinjaTrader as an example. The open is chosen for purely esthetically reasons. It does not reflect real price action and the open for reversal bars is modified in order to allow for a single brick size. The open is not real. This is a problem with NinjaTrader 8 because the fake open prices are used as the entry price for all market orders. This makes them unsuitable for backtesting of automated systems as price isn’t actually at that point during that time.

The same applies to NinzaRenko. It is very easy to generate these amazing looking backtests on these types of bars. If you want a backtestable renko bar, I’d recommend checking out LizardRenko or Backtestable Renko by SharkIndicators.

The next way to cheat the backtest engine is to use a strategy that trades intra-bar. The backtesting engine does not factor in intra-bar granularity unless you add another Data Series such as a 1-Tick Data Series and execute your trades on that series or select the option High resolution under Order Fill Resolution.

There are 4 points to every candlestick. The Open, High, Low, Close price. For example, on a 15-minute candle, the candle will open, and for the next 15 minutes it will oscillate up and down, creating both the High and the Low value, until the 15 minutes is up, at which point it will generate the Close value. If you are trading a strategy that is trading solely inside of this candle, your backtests will be flawed.

I find the best way to truly get a handle on how your strategy will trade is by running the strategy in Market Replay. Market replay in NinjaTrader is essentially a recording of the CQG data feed as it came in. This is especially important with strategies that trade mostly intra-bar.

We urge you to run market replay on the TFN Auto trading algo and see the results.

The Trading Futures Now 100% automated trading and 100% automated scalping algorithm can help you take the mystery out of automated futures trading.  We encourage all our TFN users to test their systems on a wide period of historical data to fully understand the strategy in various market conditions.  Sign up for the Trading Futures Now 100% automated trading algorithm for NinjaTrader on our website.


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