Developing investment strategies for Algorithmic Trading
An assumption from the books :
“The stock market has seen all possible kinds of news and events that are possible. Any price movement that is about to happen in the future has already been seen in the history. “
You have developed your idea in the previous lesson.
Its verification can be done through a strategy backtesting system.
Now, what exactly is that?
It is a computer program that emulates the behavior of the stock markets in the artificial environment.
It takes in your strategy and thinks as it what would have been the results if you had applied that strategy live in a previous time frame. How would have it performed during the global crisis or during elections or a natural calamity and many more events which affect the movement of the stock market?
Why is it necessary?
It lets you know the worth of your investment strategy. It allows you know whether this type of approach would have worked ever in the historical markets or not.
One shouldn’t live trade a strategy that has no history of giving good returns.
A question is often asked, are the results of the backtester proof that the strategy will run in the future?
No, an excellent historical result does not guarantee similar profits in the future. But it does guide you to segregate good and bad investment ideas
