The Mudder Report 4.0: Forward Test Update

The forward test is evolving...

Important: There is no guarantee that these strategies will have the same performance in the future. I use backtests to compare historical strategy performance. Backtests are based on historical data, not real-time data so the results shared are hypothetical, not real. There are no guarantees that this performance will continue in the future. Trading futures is extremely risky. If you trade futures live, be prepared to lose your entire account. I recommend using these strategies in simulated trading until you/we find the holy grail of trade strategy.

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We haven’t found the holy grail of automated trade strategy yet, but we get closer with every strategy. Click here for links to all strategy descriptions and the most recent performance chart from the backtest.

Edouard Manet 053, The Races at Longchamp, 1864, Art Institute of Chicago

The Mudder Report is Evolving

If I were to rank the reliability of strategy tests on the simulation it would be:

1. Live Forward Test

2. Simulated Forward Test

3. Market replay simulation

4. High-order resolution simulation

5. Standard simulation

For more detail on each of these tests, please see the previous Mudder Report.

In general, the more reliable the test, the more time it takes to run. That’s the conundrum. In other words, accuracy takes time, but backtest risk decreases with accuracy. So there’s no way to get around it—the best way to test strategies before going live is with a forward test using live data on a dummy account.

How To Set Up & Manage Automated Trading Strategies On A Virtual Server With NT8

Once we get the forward test results, then what? Well, we can see if the strategies really are profitable or if the backtest was faulty in some way. This is a hard thing to test because there are so many possibilities. I’m working with some of you that have ideas about the best approach, but after much meditation I think there are three main areas of concern that we need to focus on to improve the forward test:

1. historical data: unfiltered vs filtered data

2. backtest method: generative vs brute force

3. frequency: aggregated vs unique

So we’ll be adding several forward tests to the original shortly.

Before providing more detail on these new forward tests, let’s get into the results of the current forward test, which we’ve been running since the beginning of the year. I’m going to show you several charts including my favorite chart that breaks down net income by strategy and instrument. I’m also going to share my personal daily NQ chart with you, which maps out where I think price is headed “technically” over the rest of the year.

The Forward Test

These are the results of the forward test. The trades are being made on a simulated account, so the results are still hypothetical, but the data driving the simulation is live. Note, this does not cover all weeks of the year. October 13 was the last day of the 41st week of 2023, and as of today we’ve captured 34 of those 41 weeks in the forward test. Also note that strategy variations vary by instrument, data series, parameter setting and contract size.