Tag Archives: backtesting

The Fundamental Problem of Backtesting and Why It Has Not Helped Much Technical Traders

Trying to discover an edge by randomly backtesting ideas is equivalent to looking for a needle in a haystack. More than 25 years have passed since backtesting software became available to retail traders and the difficulty in finding an edge persists … Continue reading

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Fooled by Random Backtesting

Backtesting trading systems on historical data is again becoming popular almost 30 years after it started being used by individual traders due to recent advances in web technology and server speed that allows its online implementation. If one knows what … Continue reading

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Another Example of How the Market Defies Indicator Common Sense

The market will defy, crash and punish naive use of technical indicators. Many investors and traders search for indicators that confirm their bias about future market direction and ignore those that do not confirm it. Market permabears are notorious for this behavior. … Continue reading

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The S&P 500 and NASDAQ-100 Divergence Shows a Divergent Bias

The current pattern of divergence between S&P 500 and NASDAQ-100 had a positive bias in the 1980s and 1990s but after 2000 the bias is negative. During all 5 times since 2000 that this pattern has occurred, a stop-loss of 3% was triggered … Continue reading

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Chaos in Technical Analysis and Backtesting – Part III: Split-adjusted Data

Parts I and II of the series Chaos in Technical Analysis and Backtesting discussed some of the problems that arise in the context of technical analysis and backtesting when using split and dividend adjusted data. In this post I discuss the … Continue reading

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