Backtesting Is Supposed To Reflect Reality

The whole point of backtesting is to reflect the reality of what happened in the past. Getting ATM to open and close trades in the correct spot is our job. But there's work for you to do as well.

Each time you set up a backtesting configuration entry, ask yourself "does this reflect reality?"

During the backtesting you can have ATM buy 1,000,000 units each trade if you like. But how does that reflect reality if your starting balance is actually $1,000? The broker wouldn't let you leverage to that degree.

You can put in a starting balance of $1,000,000 if you like. But how does that help your decision making if your actual starting balance is going to be $1,000?

Also, each broker has different rules for the number of units you can purchase. Gain Capital, for example, has a minimum of 100,000 units, and goes up in 100,000 increments. EFX Group and MB Trading has a minimum of 10,000 units, and goes up in 10,000 increments. Oanda lets you buy any number of units you like - even 1 or 29,397. So the backtesting results should reflect this. If you are planning to trade with Gain Capital, you shouldn't backtest as if the system will be able to buy any number of units. You should specify that the system can only buy units in chunks of 100,000. Because that's like reality.