You’ve just gotten access to a powerful backtesting engine like Amibroker, RealTest, or Trade-Ideas.
You can’t wait to dive in and get your strategy working.
But there’s one thing you should do before writing any code or configuring your strategy.
And it’s probably not what you think.
You should remove any restrictions on buying power or account size.
That is, have the backtester assume you have unlimited buying power.
But why? Shouldn’t you configure your exact account size and buying power settings? No.
There’s a good reason for this.
When you run your first backtest, you want to avoid any artificial filtering. You want the entire set of trades that match your rules.
Let’s say you’re testing a strategy that has up to 10 trades on some days.
When you restrict your buying power in the backtester, it might only return the first 5 trades on those days.
So it will artificially hide half of the trades on those days from your backtest.
This is NOT what you want.
You want to start with the entire picture – all trades that your system could take – even if it’s way more than you have buying power for.
That’s fine, because you’re going to filter this initial trade set down, removing lots of crappy trades using filters from your columns.
You’re going to end up with a much better-looking equity curve by the time you start trading it.
But that’s literally not possible if your backtester is trying to be “smart” and excluding trades.
-Dave
P.S. Are you interested in using Amibroker for backtesting? I’m putting the final touches on a course on Amibroker that shows how traders who actually trade for their income use it. Click here to sign up to be notified when it’s available:
