Small TalkOn Backtesting with Closing Price DataQ: Saw your article about
backtesting on
futuresmag.com A: For true backtesting, you need to use the data you will be trading. Therefore you would use spot prices for futures trading. The difficulty is twofold, however, in using this price data. First of all, when prices roll over with each contract (either monthly, bimonthly, or quarterly), you will form a gap if you conjoin price data at this juncture. Secondly, if you use cash data instead of spot, you form a more easily tested item, but it is not true to the commodity you are actually trading. Usually spot prices trade less smoothly than cash, and with fewer gaps. Thus, the testing would not really form an accurate picture of what you are likely to encounter. To produce a really accurate picture of trading a commodity via backtesting, one would want to conjoin the price data from spot prices, bonding when prices roll with an adjustment factor of the difference between spot and cash prices. This data stream would have to be formed and maintained by hand and then imported into the backtesting program in use. Hope that helps. Sunny
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