99% Modelling Quality in Back Tests vs 90% Modelling Quality Back Tests
I found the following explanation (online) about regular 90% modelling quality back testing:
"The big difference between back test and Forward-Test is noticeable for system developers when they activate a system after a successful development in Live-Trading.
Quite often the excellent performance bend in back test turns out to be a completely unpleasant bend in the live-operation.
So it could happen that a profitable system becomes a loss –maker.
We have had this experience as well.
Well, what are the reasons for this?
1. MetaTrader doesn’t recognize tick-data
All the developed steps and decisions are basing on the available and historic data if you are developing a system. But the available data are not tick-data.
Many developers believe that they are developing on the basis of historic real passed benchmark data.
That’s not the case because MetaTrader calculates Pseudo-Ticks and how they could have been on the basis of 1minute candle with the appropriate High/Low/Open/Close.
Even Scalping systems which appear virtually fantastic in backt est, fail regularly on this fact.
Although of course we are developing our own systems on this basis of available data. Then, after gathering the appropriate forward-test data we either make improvements on that system or decide to reject it.
2. All Backtests are based off the data which had been loaded by Metaquotes Server!
It doesn’t matter which Broker you got. The data in the development is based on the provided data by Metaquotes. The „correct“ data is not available at Forex-Markt but every Broker / Dealing-Desk makes his own prices or rather conveys each prices of the associated banks. In reality this leads to the phenomenon "3 Broker - 3 exchange rates". A system which delivers in Forward-Test at Broker 1 x trades and at Broker 2 y trades is going to deliver at Backtest a totally different number of trades.
3. They work with an established Spread in Backtest."
How to get 99% Modelling Quality Back Tests
"In general, back testing using the data from the MT4 history center might be good enough for EAs that are not scalping or pip hunting. However, if you’re dealing with such an EA or any kind of EA that closes trades within 1-15 pips, even the smallest feed differences might have a very large impact.
The issue is caused by the Metatrader terminal not having access to the real tick data, but only to minute bar data in the best case, which forces it to give your strategy backtest “false” ticks generated through a process of interpolation using the data for the smallest timeframe available. This is most likely not important to an expert advisor that uses stoploss and takeprofit targets of over 100 pips, but in the case of robots that attempt to scalp a few pips here and there, your backtest could be completely misleading.
So, it is very important to try testing using data having a quality that is as high as possible ." (see eareview.net)
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