Trading Truth 147

" Historical testing is like batting practice."

If you were a baseball batter you would love to be able to face all the balls pitched in a particular game or season. What if you could somehow call up each pitch and play the exact ball?

Any batter would tell you that would be great practice. That way, he could get to know all the pitchers and the different types of ball.

A batter who could play every ball delivered in every game the previous season would certainly gain some benefit and it would be hard to pitch anything that would be a complete surprise to him.

The batter would be able to develop his techniques and competence to the point where he felt comfortable standing in front of any pitcher.

None of the exact same pitches will occur again in future and certainly not in the same sequence but that would not be the important thing to this batter. He would have seen everything that could have been seen and be as well prepared as possible for what might happen next season.

That is similar to the position of the systems trader who tests with historical prices, allowing him to replay all previous market activities against his systems.

Sadly, the baseball batter cannot recreate the superb practice environment described above but the systems trader certainly can.

Of course, like the baseball batter, the systems trader does not expect the past to repeat itself 'ball by ball'. However, he can definitely test the capabilities of his systems and get a very good idea about their quality - and whether 'they know how to trade the markets'.

Yes, historical testing is like ideal batting practice. That's why professional systems traders make the fullest use of this technique when they evaluate their systems.

 

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