Historical bias, backfitting of data and the absence of accurate historical data are just a few ways a backtesting study's results can become inaccurate.Īnother popular way by which system developers test a trading method's validity is called walk forward optimisation. This is more complex than backtesting, but at its core, it is simply testing a trading method's validity over random historical data sets given variable timeframes. While backtesting is prone to producing obsolete results, walk forward optimisation aims to simulate future performance. System development was once a discipline only available to large institutional investors and fund managers. However, as information systems technology advanced, the availability of data and software became affordable and available to the retail trader. Many electronic trading platforms offer system development options included in the client's software package. MetaTrader 4, NinjaTrader and Trading Station are a few platforms that offer the retail trader products useful in system development. Technology and system trading go hand in hand, and often function as one in today's electronic marketplace. Automated trading, algorithmic trading and high frequency trading are all examples of system dependent trading methodologies that have become prevalent in the global marketplace.Īutomated trading is an approach to the markets where individual trades are placed and managed exclusively by computers.
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