EVALUATING YOUR STRATEGY
EVALUATING YOUR STRATEGY Once you’ve determined which markets you want to trade, selected a time frame, and defined your entry and exit rules, it’s time to test and evaluate your trading strategy. There are three ways to test your trading strategy: Back-Testing Back-testing is a method of testing which will run your strategy against prior time periods. Basically, you’re performing a simulation: you use your strategy with relevant past data to test its effectiveness. By using the historical data, you’re saving a ton of time; if you tried to test your strategy by applying it to the time periods yet to come, it might take you years. Back-testing is used for a variety of strategies, including those based on technical analysis. The effectiveness of back-testing relies on the theory that what has happened in the past WILL happen again in the future. Also, keep in mind that your backtesting results are quite dependent on the moves that occurred in the tested time period. I