EB
01-19-2012, 03:14 PM
The following was first sent as a private message:
I have a question that I hope you can give me some guidance on. If I'm backtesting on 1, 30, and 60min price bars how far back should I go in time if I only have 40 occurences (i.e., data points) to test on 60min bars over the span of an entire year, 86 data points on 30 min price bars and 400 on 1 min bars?
I don't worry as much about how big "n" is (the number of occurrences), so much as capturing many different market environments. I didn't really know how to describe this or quantify it until Billy posted Steenbarger's article on stationarity here (http://www.effectivevolume.com/showthread.php?4208-The-Robot-and-Stationarity-The-Best-Kept-Secret-in-Trading-Success).
The short answer on how far back to go is: as long as possible. There are, of course, constraints that may make it unfeasible or inadvisable to test all available historical data. For instance, the presence of the uptick rule distorts the 20 day MF, so any backtesting Pascal does in this epoch is not applicable to the current one where we don't have the rule.
Your computer might be able to backtest 10 years of 60 minute SPY data comfortably, but not 10 years of 1 minute data. In that case, you might survey a longer term chart and choose a sampling of three to four month windows at various times of the year over several market cycles. This is possible to do in TradeStation, but may not be on other platforms, and even at that, it is a bit cumbersome. Unfortunately, most platforms are not geared toward proper backtesting procedures.
Another thing to consider, since you're using intraday data, is that stationarity increases substantially the shorter the holding time, as factors such as proximity to the open/close/news factor heavily, among many other things. It's difficult to create a robust system with a meaningful edge on a 1 minute chart without taking these complex factors into consideration.
Anyone else, please feel free to chime in.
I have a question that I hope you can give me some guidance on. If I'm backtesting on 1, 30, and 60min price bars how far back should I go in time if I only have 40 occurences (i.e., data points) to test on 60min bars over the span of an entire year, 86 data points on 30 min price bars and 400 on 1 min bars?
I don't worry as much about how big "n" is (the number of occurrences), so much as capturing many different market environments. I didn't really know how to describe this or quantify it until Billy posted Steenbarger's article on stationarity here (http://www.effectivevolume.com/showthread.php?4208-The-Robot-and-Stationarity-The-Best-Kept-Secret-in-Trading-Success).
The short answer on how far back to go is: as long as possible. There are, of course, constraints that may make it unfeasible or inadvisable to test all available historical data. For instance, the presence of the uptick rule distorts the 20 day MF, so any backtesting Pascal does in this epoch is not applicable to the current one where we don't have the rule.
Your computer might be able to backtest 10 years of 60 minute SPY data comfortably, but not 10 years of 1 minute data. In that case, you might survey a longer term chart and choose a sampling of three to four month windows at various times of the year over several market cycles. This is possible to do in TradeStation, but may not be on other platforms, and even at that, it is a bit cumbersome. Unfortunately, most platforms are not geared toward proper backtesting procedures.
Another thing to consider, since you're using intraday data, is that stationarity increases substantially the shorter the holding time, as factors such as proximity to the open/close/news factor heavily, among many other things. It's difficult to create a robust system with a meaningful edge on a 1 minute chart without taking these complex factors into consideration.
Anyone else, please feel free to chime in.