Backtesting trend following strategies

Z

z106

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Does any one out there know where you can download software to back test trend following strategies ?

Has anyone ever done this before?
 
But backtesting need not equal datamining. I would encourage the OP to set about backtesting any mechanical strategy he is interested in. Sure, if something worked in the past, there is no guarantee it will work again but if backtesting revealed that said method did not work in the past, then it would be fair to assume that any boastful claims made about said strategy are simplistic and that it should be steered clear of.

Re. trend-following, some people tend to think of a couple of issues like oil or gold and assume that it's a sure-fire thing but it's not that simple. Most trend-following funds have lost a bunde over the last few years and even the most successful guys experience long and intense drawdowns. Also, you need massive funds to take all the signals rather than cherry-picking a few. Perhaps most importantly, it's very difficult psychologically to be a trend follower - most trades are losers but it's hoped that the occasional winner will prove to be a big one and more than make up for the others. Thing is, most people can't handle such a method as it's painful to experience a string of losses, even small ones.

For short-term trades on a market like the S&P, it's fair to say that a more subtle approach to TF (ie, buying a strongly trending market that pulls back to support) is a better idea than simply buying the issue when it breaks out to new highs or new 20-day highs or whatever. Brett Steenbarger is always back-testing such ideas, see below link for more.

http://traderfeed.blogspot.com/2008/03/more-insight-into-how-to-lose-at.html
 
You're bang on charttrader.

Like - how can NOT backtesting be better than backtesting?
It doesn't make sense.
 
Yes - it can lead to spurious conclusions - howver, when done properly it can cetainly benefit.

E.g.g A lot of testers might try to select a system based on data up to,say, 5 years ago- and then select their method for the next 5 years to see does it stand up.

Also - other testers may purposely NOT select the best performing method in the belief that the same trends will not occur in the future.

Many testers will only use the most robust method i.e. the system that stands up best to a variety of ALL assets - as opposed to applying a method for buying say,gold in the future that historically worked very for well specifically for gold in the past.

My point is - backtesting is far from a holy grail,but,when applied correctly, it is certainly better to have this information than not have it.
 
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