Testing trading systems is an important step of system development. If one has gone through all processes of
designing a trading system, it does not automatically mean that this or that system will work properly. Even if all rules have been kept, if all proper information have been thoroughly studied, this is not the end. It is only the beginning, it is a platform that wants testing to make sure that all mechanisms function in a proper way.
Nowadays, the traders develop and test trading models, which can be retested and adjusted when market conditions change. Everything that such traders have to do is to pick the price data for their testing and to specify the indicator values that are used. Two factors such as the number of models that are involved in the process and speed of the computer influence this procedure. So, testing trading systems should be performed in a process that consists of two steps: coarse testing and fine testing. At the beginning of testing, the increasing size between values is fixed relatively big for each and every indicator. When a narrow set of profitable models is found, the increasing size is reduced. Afterward the models are tested in compliance with more limited range until the best and appropriate model is isolated.
During this kind of trading system
optimization, one should not forget that one of data components is historical ones. It may happen that after one has developed and tested one of the
trading systems, it will lead to losses (though development was done as it is recommended). There is also one
tip: there is no sense to find the best model for prices that were several months ago, it can be used only as a pattern, not as blind imitation. In any case, a trading system will deal with real prices and every day changes on the market. The main feature of any such system should be flexibility for avoiding unnecessary mistakes.
