What is the Link Between Backtesting and Forward Testing?

Are you searching for the correlation between backtesting and forward testing trading strategy? There are a lot of trading system and backtesting and forward testing works together to determine the viability of a trading system.

Most trading platforms supports backtesting these days. It has also enabled traders to test their trading ideas and gain insight about the effectiveness of an idea without actually investing their money.

There is a very significant relationship between Backtesting, Out of Sample and Forward Testing, as all are interconnected. So, an error in one step will result in compromising of the whole trading strategy.

What are the Common Mistakes to Avoid When Implementing a Trading Strategy?

Traders who are eager to employee trade idea in the real market mostly makes a mistake by completely relying on backtesting results to evaluate whether a system is profitable or not. However, backtesting is a means to get valuable information provided to a trader yet it can be often misleading because it is only a part of the estimation process.

Out of sample testing and forward testing then comes into play to complete the evaluation process. As they provide further evaluation of a trading system’s effectiveness and reveals true color before trader actually putting real cash on the line.

Thus, for the actual determination of a trading system, good correlation between Backtesting, Out of sample, and forward performance testing is very crucial.

What is the Correlation Between Backtesting and Forward Testing?

Traders need to beaware that the results from backtesting is only one step. Forward testing and Out-of-Sample testing helps further in confirming a system viabilty of a trading system.

So, both result depends upon one another as results from one became a base for another testing for better evaluation of trading platforms.

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