Getting Your Trading System To Trade - Backtesting

The first step is to make sure you understand about rules and values.

the second step is to make sure your trading system has the minimum required rules and values.

Now, most likely you are reading this article because even though you have read and implemented the above, your trading system is not opening trades during the backtest. So now we will focus on the possible causes.

Firstly, are you sure that the test has enough price bars in it for the entry rules to be checked? If you have a moving average of period 200 in the rules, then you need at least 200 price bars to backtest with.

Secondly, are you sure that the entry rules can be true at some point during the test?

With that out of the way, now we focus on the results of the backtest. How the system behaved during the backtest will fall into one of 3 scenarios:

1. No trades are made at all.
2. Trades are made initially, but then stops.
3. Trades are made often, as you expect.
    

1. No trades

This is an indication that your trading system is not set up correctly. Try these:

• Are you sure that you have corresponding values for all the rules?
• Are you sure that you have the minimum required rules and values?
• Do you have any rules which will never be true together? E.g. one entry rule says to enter when the close is above the moving average, while another entry says to enter when the close is below the moving average.
• Long trading - make sure the stop loss will work out to be lower than the entry price.
• Long trading - make sure the take profit (if set) works out to be higher than the entry price.
• Short trading - make sure the stop loss will work out to be higher than the entry price.
• Short trading - make sure the take profit (if set) works out to be lower than the entry price.
• Make sure your account balance is enough to purchase the number of units that the system wants to buy.

Once you have fixed any problems, run the backtest again and start the checklist from the beginning.
 

2. Trades initially, but then stops

The first thing to check is your account balance. If the trades that were made ended up in your balance falling and falling, then eventually there won't be enough balance to make any more trades. This is expected behaviour and in fact the only thing that's wrong is that your system is a dud :-)

If that is not the case, then most likely the cause is related to the "No Trading" settings. These settings can interfere with each other so that after a few trades no further trades are possible. Here's an example:

• Allow up to and including 2 long trades in a row.
• There must be 3 long trades in a row before allowing short trades or orders.

Taken together, it means there will be 2 long trades and then nothing more. After those 2 long trades, the first rule disallows any further long trades until a short. And the second rule is still waiting on another long trade before it allows any shorts.

Once you have fixed any problems, run the backtest again and start the checklist from the beginning.
 

3. Trades normally

If your backtest results show trades taken as you expected, then that is problem solved if all you wanted to do was backtest. If however you are reading this article because you are unsuccessfully trying to auto-trade, head to the corresponding entry for getting a trading system to trade - autotrading.
 

If it still doesn't work

If your trading system still refuses to trade, you will need to seek advice in the forum. Give as much information as you can. An exported version of your trading system would be ideal. If you are worried about your privacy, then make a copy of your trading system. Edit the copy, delete the private stuff, and maybe make a generic version of your system that still displays the same problem but doesn't give away your special sauce. Export that one instead.

Screenshots are also good. We've found that glancing through these screenshots, it takes about 20 seconds to diagnose the problem. Without the screenshots or the exported system it takes a lot longer.