Tag Archives: walk forward theory

Why trading strategy fails but is successful in historical backtesting? No walk forward theory or exchange simulator testing

Why trading strategy fails  but is successful in historical backtesting? No walk forward theory or exchange simulator testing

A great question from visitor:


> Hello Bryan,
> I was on the demo yesterday and had a couple of questions: Have you
> ever traded a live account using HFT models on the sub minute interval
> and how successful was that experience? If so, do you have a strategy
> for quantifying limit order fills or achieving fills that are reliable
> enough to use in your model? I’ve found that it’s pretty easy to
> create an very rosy equity curve in theory but in reality you get
> filled much more often on the losing trades than on the winning trades
> and the model is nearly useless at predicting which ones you will
> actually get filled since that is an unknown variable. I’ve tried
> using assumptions such as X trades at price, time at price but the the
> only one that is reliable is if the price trades above or below your
> price which will destroy the equity curve.

–> I have not done the live trading YET but doing lots of paper trading. As you know backtesting gives something that has totally different results. I am reading the book from Robert Pardo about walk forward testing to minimize what you mention. I have other theories that may work including running strategies in simulated exchanges which can be done with the tools I have at my disposal. It comes down to a time thing but these items will be considered well before trading with live money.
> Curious to know your thoughts about this as this seems to be the main
> hurdle in my opinion and this is where the big boys probably have is
> beat since they have much more data processing power, faster
> connections, better relationships with the exchanges, and can front
> run the winning trades before we can get in.
–> See above but it seems many forget to do walk forward testing or even running a strategy through an exchange simulator. As said, I got tools that do this but it just unfortunately on the back burner right now.


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