Does the speed of your backtest matter that much?
Backtesting differs from live trading since you can do it after hours.
So does it really matter if it takes a while to complete?
It matters a lot!
A backtest is an attempt to answer a question.
You’ve developed a theory and determined a way to test it without putting money at risk.
Think of a backtest as your personal question answerer.
But if it takes days or months to get answers, then the answers become less valuable.
The quicker you can generate answers to your questions, the better.
Zoom out and think about your entire feedback loop.
From the initial thought in your head (“hey, this chart looks odd – I wonder if that has an effect on my strategy?”) all the way to applying a rule to make your strategy more profitable.
Most new traders think you’ll be answering a question or two, and then you’ll have your final answer – your profitable strategy that never changes.
But that’s not how it works – you’ll be constantly asking questions about the markets.
And the answers are great, precisely because they often generate more questions that you hadn’t considered before.
So your question/answer feedback loop is critically important. (Way more important than even the strategy you trade.)
How can you minimize the time to generate answers?
More on this topic tomorrow.
-Dave
