PWB#5 - Impossible Trading Systems

If you create a trading system that buys and sells about 80 times a day, essentially that system is impossible for a single human to trade. Either you would need to automate it, or have a group of people so you could get some sleep at some point.

If you can only guarantee you can be at the computer between the times of 2pm and 4pm, then your backtesting cannot scan data over the entire 24 hours of the day. It must only use data available between 2pm and 4pm.

If your account does not allow hedging (that is, holding both a long and short position in the same currency in the same account), then backtesting a system that hedges is pointless. (Although you should be able to set up two accounts - one for your long trades and one for your short).

A post over at Trader Eyal shows another type of situation where your backtesting might not reflect the reality - he wanted to go short on some stocks, but the broker he uses did not have any of that stock available. This is for stocks, I'm not sure currency would have the same situation, but there it is.