Recently I read tweets which were misleading many traders in a very wrong way. A tweet said Backtesting is futile and common sense is better in trading. Another tweet said Traders need to have smaller drawdowns.
1/
Firstly, if you do not know your system's backtesting stat, how do you plan on risk and money management ? Will a trader have conviction to trade through drawdowns ?
Drawdowns are a factor of risk per trade. If you take lesser risk per trade, then drawdowns will be lesser
2/
& vice versa. Directional traders know a system's equity curve will go through drawdowns but probably hit a new equity curve high. 20-30% drawdown doesn't mean 20-30% loss in capital. It is the part of Capital + P&L left on the table while executing the trades as per plan
3/
Backtesting your system is the only way of knowing how your system performed in historical period of time. Though that doesn't guarantee future returns, atleast a trader will know the boundaries and adversities of the system he/she is planning to deploy
4/
All said, if a trader's psychology is tuned to see smaller drawdowns, that doesn't mean every other trader should follow it. A good trend following system may even have >50% DD producing greater returns.

Finally, my advice is that, do not mislead traders with half baked info
n/
I spent nearly 2 weeks of 8 hrs a day to manually backtest intraday trading system manually. At the end of 2 weeks, I was able to have a conviction to trade the system. If there was no backtesting, I would not be trading this system now https://twitter.com/SunderjiJB/status/1040136297313054720
You can follow @SunderjiJB.
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