After you refresh your backtest to current, comparing it to your live trades can point you to the reasons for your drawdown.
Here’s a list of things you can compare, in order of importance:
Missing Big Winners
Sort by the largest profit in your trades list. How many of those are missing from your live trades? Find out why.
Slippage on Entry
Compare your entry prices in the backtest with your entry prices in your corresponding live trades. How much of the drawdown is coming from this difference?
A good way to do this is to add another column using Excel for the total slippage in terms of profit dollars for each trade, and then sum it up.
Slippage on Exit
Compare your exit prices in your backtest with your live exit prices. Add another column for exit slippage and sum it up to see how much it’s contributing to the shortfall.
Here’s the thing:
Your live trading is never going to perfectly measure up to your backtest, but that doesn’t mean you can’t take action to minimize all these things in the long run.
If your current drawdown is barely visible on your backtest, don’t get frustrated – that’s a good thing.
There’s always something you can do to address these issues.
-Dave
