This article provides a real-life case study that shows the step-by-step approach we take at Trade Like A Machine to undertake best-practice back-testing and optimization of our trading systems. It illustrates how we i) Improve the effectiveness of our trading systems significantly, ii) Ensure that the results have a grounding in statistical significance (i.e. that they can be relied on). In other words, so that we know they will deliver results in our live account that are comparable to those we see in back testing.
For example, the article will explain how we managed to achieve an 8x improvement in the effectiveness of our trading system (as measured by our reward/risk measure), by improving the statistical significance of the test. (Actually achieved by making ‘simplifications’ to our back test settings!)