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How to make backtesting more effective

The efficacy of any trading platform depends on backtesting, a process where historical data is used to test the strategy before actual capital is used. Thus, a trader actually imitates an actual trade and analyses the results to see if the strategy will yield profits. But there are some things that need to be considered to make this stage more efficient and productive.

Points to consider:

Manual trading or automated trading systems like the QProfit System backtesting is an integral part of trading.  It is not fun to do this testing therefore when you are at it make the most of it by following the tips stated below.

  1. Choose a long-time frame: You need to take into account the time frame in which a strategy was tested and also consider the market trends during the testing phase. Your system might not work if it is not exposed to different market conditions for backtesting. That is why choose a time frame that is spread over several years.
  2. Keep exposure low: As a general rule, it is seen that the higher the exposure the greater the profit and conversely the greater the loss. Adopt a conservative approach where your exposure is no more than 70%; this method will minimize your risk and allow you to get in and out easily out of a stock.
  3. Avoid over optimization: Invariably during backtesting, the developed tunes the performance results to a large extent to past which obviously will not fit into a volatile market where the parameters keep changing constantly. To avoid this scenario, make rules that apply to all stocks or at least to a select few.
  4. Mimic the broker: If you want your testing to be accurate you must tune all the settings to behave like the broker who will be used in the live stage.
  5. Don’t forget the bars: The main reason for this testing system is to ensure that you get good returns once your system goes online. A key way to improve returns is to reduce commission costs by increasing the average number of bars. Commission costs can also be reduced by increasing the average gains and the win-to-loss ratio.

Conclusion

Systems like the profit system, Click here to know more about it, are successful because of successful backtesting. Any system with a well develop backtesting option in place will not only improve the trading strategies and optimize them but will also highlight any technical flaws in the system before you go live. It is important to have all your bases covered before entering the real world.

 

How to overcome hardware and software glitches in automated trading systems

So, you have heard about the advantages of automated trading systems like the QProfit System, learn more when you click here, which can minimize losses and reduce manual errors and have decided to invest in it.  But before you take the plunge understand the prerequisites of this system and learn how to tackle and troubleshoot any issues that can threaten your trading.

american dollars in the hands

Hardware Failure

Hardware has often neglected the aspect of trading but in reality, it is the foremost prerequisite for the success of any automated trading system. The important parts of hardware can be broadly classified as:

  • Power supply: It is important that you have an uninterrupted power supply at all times to continue trading smoothly. But sometimes natural disasters strike and they can lead to power outage either at your end or at the exchange leading to shut down of servers. Therefore, it is always advisable to have a backup power and alternate routing platforms.
  • Computer health: Always ensure that all computers that are used for trading are working properly without any issues.
  • Router health: Pay attention to your router’s firmware and ensure that it is up-to-date; keep separate hard drive exclusively for your trading and ensure that the internet connection is top notch and not given to loss of signal frequently. It is really crucial that you ensure there are no power outage or internet connectivity issues because they can make the difference between profit and loss.

Software Glitches

Now turning to the software side; glitches can happen either at the trader’s end or at the exchange itself. Errors in the program of an automated trading system or a programming error at the exchange can prove disastrous for the trader. Glitches in your system can lead to unwarranted trading which can result in severe losses. Glitches are preventable if you follow the tips listed below:

  • Make any changes to your software that are critical for your business in the lean period when business is dull.
  • A backout plan must always be in place to overcome aby sticky situation so as to return to stable grounds and continue trading in a smooth fashion.
  • Engage the services of experienced software testers. They will be expensive because they have the necessary resources to tackle a wide spectrum of software issues. Furthermore, they will save you the expenses and losses resulting from software outages.
  • Regression tests can be automated to not only save time but also to retain the functionality of your system without any issues.

 

Thus, Your profits or loss are not dependent just on your strategies and trading skills but on the condition of the hardware and software also.