REMEK! Momentum Pro standalones - Documentation
Part 8: Research and backtesting with the Remek! Standalones (PRO STR, BT, BTX)
While most traders are familiar with the basic concept of backtesting, it is important to recognize that backtesting is just one part of a larger process called edge verification. Edge verification is an ongoing, recursive process the goal of which is to ensure that the trader’s edge is maintained as trades are executed on the markets. A complete coverage of the art and science of backtesting is beyond the scope of this documentation, but it should be noted that the process includes the following steps:
Backtesting: the process of finding out how a strategy would have performed, had it been deployed on the markets. Backtesting can be performed manually, or with a computer. Basic characteristics of the backtesting process are, e.g.
- backtesting requires that the rules of engagement with the markets are defined. Even the smallest change in the rules means the backtesting process must be restarted from the beginning
- be mindful of the inherent limitations of backtesting software: in backtesting every time a limit order (stop loss, stop entry) is hit, the order is filled. In real life, that will not be so. Over a large number of trades this wil be one reason our backtesting results are never going to be like the future.
- the orders our backtesting software placed on the market never actually happened, and thus never affected the market. In real life, our orders will have an effect on the market, however small. Our real-life orders will change the market, which change can not be replicated in a backtest.
- any backtesting process must take into account the various market regimes: a backtesting carried out on a strongly trending market will yield dramatically different results on a sideways, range-bound market etc.
- a well-designed backtesting process should pay careful attention to the topics of in-sample and out-of-sample testing, backtesting in Market Replay etc.
- and perhaps the most significant limitation: the future is never the same as the pastOptimization involves finding the most robust settings for the software. Care should be taken not to overoptimize (curve-fit) the system. Curve-fitted systems quickly collapse on data they never encountered. Remember, you want a system that can handle data that it has not seen yet.
Forward-testing: forward-testing involves deploying the strategy and trade in real-time, as new market data comes in. In a forward-testing scenario, our strategy must handle and perform on data that it has not encountered yet. (Note that running the strategy in Market Replay can be interpreted as forward-testing if the strategy has never before been run on that data.) Forward-testing can occur in
- SIM mode (with toy money)
- or real money
If forward-testing in SIM mode, the limitations of SIM trading apply: a) in SIM limit orders may not get filled the same way they would in real life. b) our SIM orders do not actually affect the market. As a result, SIM forward-testing results may and often will be significantly different from real-life results. Therefore only a forward-test with real money can be a real forward-test. (Since a real-money forward-test is still just a test, the smallest possible size should be used so as not to waste resources.) Note also that even a real-money forward-test is no guarantee of future performance: the future will never be the same as the past.Sizing up, real-money trading should only be considered after a successfully completed backtesting stage, and a successfully completed forward-testing stage, and when reasonable expectations of success, through the completion of edge verification, has been ensured.
Review and monitoring: Results of real-life trading should be monitored and the rules of engagement regularly reviewed and if needed, modified: as markets may change, our rules of engagement with the market may have to change as well.
Note: the above is only a quick introduction into some of the issues that should be considered as part of the edge verification process. Books on this topic could fill a library, and each trader is encouraged to do further research, and carefully design their own in-house edge verification process.
Essential resources:
“Backtesting” on our Forum - a must-read for the serious trader
”Backtesting” in our Blog - articles, blog posts, real life examples in our blog
Recordings of “backtesting” and “forward-testing” projects on our YouTube channel
General notes on Backtesting in NT8 with the Remek! Standalones
There there are 3 ways to backtest a strategy in NT8:
by running Market Replay
by right-clicking on the chart
by running the strategy in the Strategy Analyzer
Now, let's see our products, and how they handle backtesting tasks:
PRO STR: backtesting is only possible by doing "1" above. Note that "2" and "3" are not possible because of how NT8 is built, and because of what an ATM strategy is.
PRO STR BT: backtesting is possible by doing "1" (although there is no need for choosing this option), and "3" (by running the strategy in the Strategy Analyzer). The reason BT cannot be backtested by "2" is because it has buttons (the state of which could be changed during the backtest, rendering the backtest useless).
PRO STR BTX: backtesting is possible by doing "1" (although there is no need for choosing this option), and "2" and also "3" (note: BTX has no buttons on the chart, so "2" is possible)
As seen above:
a) “1" is always possible
b) BT and BTX can be backtested in the Strategy Analyzer
c) BTX can also be backtested on a chart.
Now let’s look at BTX in more detail:
Remek! Momentum PRO STR BTX - our research tool
Nothing ever stays the same, why would markets be an exemption? Markets constantly evolve. The same edge pursued by too many is not an edge any more. Consequently, it is part of our job as traders to include an ongoing research and edge verification cycle into our trading process. This requires careful thought and planning and will, most likely, include some form of backtesting, forward-testing, in-sample/out-of-sample testing and some basic but important statistical analysis as well. Doing this with the wrong tools (or worse, no tools) can be an overwhelming and time-consuming process.
This is where Remek! Momentum PRO STR BTX comes to our help. On the surface, and in the simplest terms, PRO STR BTX is like PRO STR BT, only without the buttons. The actual BTX under the hood is a bit more involved though, and is the result of a meticulous development process that took into account the smallest details as incoming market data is processed in NT8.
A summary of what BTX can do for your trading:
1. Run strategies without a chart: any number of BTX strategies can be run directly on the Control Center Strategy tab, on any timeframe, without needing a chart, allowing bulk trader for large-account traders.
PRO STR BTX run on NT8 Control Center’s Strategy tab.
2. BTX can be backtested/optimized etc. in the Strategy Analyzer with the setting of either AUTO, LONG or SHORT. (PRO STR BT can only be run in the Strategy Analyzer with the AUTO setting.)
3. BTX can show historical trades on a chart: visual inspection can be a useful part of the backtesting process.
Historical trades shown by PRO STR BTX.
Watch our video series below:
Videos on backtesting
Videos on optimization
Building confidence with numbers
Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing one's financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.
See also: