*** Live forward testing versus Back testing

[jgerousis]

Back testing a system or a method is very easy to do. With a click of a button, metatrader can back test any method programmed in an EA, in any date range. Results are finely displayed, with graphs, and analysis. Parameters can be changed, test run again, and new results are out. This method can be performed over an over until best results are achieved.

The above is often used by people who need to tweak their system to achieve best results. It is also used by signal sellers, and system sellers to provide performance history for their method.

This is a very bad technique and I do consider it as way to fool traders who buy those systems. The main aspect of this method is that the back test has been done to get the best of the system. The system has been tweaked to deliver best results in the past. However, it will severely fail in the future. The main challenge that arises is how to make the system deliver good results in the future. A tweaked system which delivers excellent historical results will surely fail in the future.

This is why, there is no use in back tests to test systems, unless, you have a good system which is running good in live forward testing, and you wish to have more information about its past.

The idea here, as I stress and always stress, is to test systems in live forward mode. This is the only way to prove that the system works. Then, if it works, we can do back test for periods that we could not do a forward test on, to have an idea of the past results too.

[LogicRules]

I agree 100%. Backtests are good for debugging EAs, though. They're good for checking that trades get opened and closed pretty much where you would expect them to, and to make sure your lot sizes are being calculated properly.

For whatever reason, they often show much more profit than you see in forward-testing.

Some people claim to be able to get greater than 90% fidelity with tick-by-tick backtesting, but still I find myself only trusting forward-testing to judge how good an EA is.

Here is an effective and simple check you can do on anyone offering EAs: ask them to show you their LIVE statement that is trading one of the EAs. If they won't show you this, they are scammers.