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Live performance forward testing VS Historical backtesting
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[QUOTE="Adam Weil, post: 60854, member: 22357"] Assuming that you have an account with a reasonable balance and for any reason, you have decided to implement an expert advisor on your trading station, then you got a brand. [url="http://www.reviewforexrobots.com/index.html"]new Forex robot[/url] with enough good reputation and suitable price! Or for other instance, you have coded a new EA or strategy that worked well during your manual daily trading by yourself to automate your trading. Let's start by saying that you should never run even the [url="http://www.reviewforexrobots.com/top-forex-robots.html"]best Forex robot[/url] in the world on your real account before backtesting it on historical data and testing its live performance on a demo account, even both of these evaluational processes don't precisely reflect the true behavior of your EA if run on a real Forex account for many reasons (will be mentioned later), but they could give you a general idea to decide whether to run it on your real account, give it another trial looking for its best settings that fit with your conditions or even request a refund and give it back to its author (Never pay for an EA without a refund policy). Good correlation between backtesting, out-of-sample and live performance testing results is vital for determining the viability of a trading system. While [url="http://www.reviewforexrobots.com/tick-data/index.html"]backtesting[/url] as a simulating process has many disadvantages as it's natively a standalone mathematical process based on mostly offline historical data, it's mandatory for testing of some types of strategies, therefore backtesting results may include orders that are not filled in real-time strategy calculation or real-time strategy trading and here is the most prominent reasons for that: [LIST=1] [*][B]Live Market Reaction:[/B] The market movements are simply reactions to the traders orders, your live orders really affect the market whatever your trade size is, while in backtesting this has no rule. [*][B]Broker latency:[/B] This is a dynamic constantly changing latency periods ranging from 1 millisecond to even 10 seconds caused by exchange latency and internet connection latency, a fixed latency time in backtesting for example set for 300 milliseconds doesn't compensate that. [*][B]Orders Filling:[/B] In backtesting this is done depending on the main data series price without taking Volume into account. [*][B]Historical Data Structure:[/B] Most of its forms are as time-based bars (minute, daily etc) depending on a ticks group containing just Open, High, Low, and Close prices without the actual price movement within each bar from these four values. [*][B]Missed Tick or Wrong Ticks Data:[/B] A singl tick difference between those available for backtesting and the real live data could result in a complete difference between the live and backtest charts for the same period under the same conditions, what missleads the tested [url="http://www.easreview.com/index.html"]Expert Advisor[/url] or strategy calculations. [/LIST] Certain charts can magnify the difference between live and historical calculation as Point and Figure chart. Best Profitable Wishes Adam Weil [/QUOTE]
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