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Why most back testers are just not up to the task!

Unfortunately most system testers available in charting packages leave a lot to be desired when it comes to realistically and objectively test the performance of a trading system. This includes either single security or multiple security back testers, which test each security independently of the others. In the end the trader is not completely satisfied with the results from such testers and so the question of performance of the trading system still goes unanswered and the trader usually trades the system with a lack of confidence and a certain amount of self-doubt.

Lack of confidence usually forces traders to question their own trading systems with a temptation to continually modify it with devastating consequences. This temptation is usually spawned on by a string of losing trades or an opportunity to replace their trading system with a whiz bang indicator that was talked about on a traders chat forum which seems like the answer to all traders prayers. Anything that sounds to good to be true will attract the attention of a trader who is not satisfied with their own trading system simply because they have not properly tested their system in the first place and have not built up the necessary confidence needed to successfully trade it. In the end these negative subconscious thoughts will only hinder and destroy your ability to trade successfully. To improve your confidence in your trading system you need to thoroughly and objectively back test it - simple as that! Only then will you be confident enough to commit time and money to it!

The Traders Dilemma

Given a trading system based on a set of indicators which define entry-date/price and exit-date/price with an optional initial stop, how will this trading system perform over a period of time when trading an arbitrary group of securities?

  • To truly evaluate the past performance of a trading system we need a trading simulator, which mimics the day-to-day trading activities of a typical trader.

  • System Testers based on a single security are fairly limited in their ability to evaluate the performance of a trading system across a multiple security portfolio so we need more powerful analysis tools. Until now this kind of software has been out of the reach of most traders who use technical analysis.

Introducing TradeSim

TradeSim is the first realistic true trading simulator/analyzer for Metastock that can quickly back-test and evaluate a trading system across a portfolio of securities. With its powerful data processing capabilities TradeSim can evaluate the historic performance of a given trading system within a matter of minutes and do it with a realistic representation of a real-life trading scenario. Whether a single security or a multiple security portfolio, TradeSim answers the simple question: -

"What would of happened if this system had of been traded in the past using an arbitrary portfolio of securities?"

Sounds simple - but is extremely complex if not impossible to do with Metastock as it stands. However, with TradeSim it is just a simple matter of running a Metastock exploration on a portfolio of securities using your own set of indicators. When the exploration has finished you just simply run TradeSim and analyse the resulting trade data.

"With TradeSim, Metastock becomes more powerful than it ever was - even rivaling trading packages costing many thousands of dollars!"

You are probably not aware that to approach the functionality and power that TradeSim adds to Metastock you would need to spend many thousands of dollars more than the combination of both packages put together. Even then, competing packages fall quite short when it comes to analysis power and options as well as simplicity of operation. TradeSim was built right from the ground up with the professional trader in mind!

"TradeSim dispels the myths of indicator performance!"

Your system may look good with an expert overlayed on a single chart. "But what about its real world trading performance?"
Typically your system will consist of entry and exit triggers, prices as well as an initial stop loss. These five parameters basically define a framework for a trading system. The trouble with trying to back test a trading system is that the system tester built into Metastock is only limited to a single security with only one position size model with a fixed initial capital. As a result this can give a very distorted view of your potential trading system performance, which can be very misleading for a number of reasons, namely: -

  • Because back testing has only been applied to one trading entity and not across a wide range of trading entities from different industry groups, the result is an unrealistic representation of a typical real life trading system, which is usually traded across a diverse range of securities.

  • Limiting of system testing to a single trading entity will result in an inadequate number of trades. Back testing your system using one trading entity may only yield twenty or so active trades. Hardly enough to evaluate its true performance and very misleading from a statistical point of view!

  • Insufficient choice of position sizing models limits evaluating the system using a position-sizing model, which may not be optimal for the trading system under investigation.

TradeSim addresses all of these issues whilst exploring new ground in technical analysis and uncovering new issues that have not been addressed by current software technologies.