Evaluating Trading Strategies
Overview
Evaluating a trading strategy can be a tricky business. Even if the strategy has been traded in the markets so that
a true performance record is available, the future is still unknown and the old maxim that past performance
is not a guid to future performance is applicable.
For hypothetical strategies which have no actual history, the first step of analysis is to generate a
hypothetical trading history by backtesting the strategy. This process itself is fraught with risk, largely
due to the
market impact
of the strategy, which can only be guessed at.
Topics
- Assessing Indicators -
if an trade algorithm is based on a set of indidcators (techincial or quantitative measurements),
those indicators can be assessed independent of the strategy itself.
- Backtesting a Strategy : The first
step of testing a strategy is often running the strategy on past data to try to understand how well
it would have performed.
Analysing Performance/Backtest
