Friday, May 28, 2010

Backtesting data

A change of pace from my usual posts, but I recently saw a note from someone looking for the best tick by tick data available for backtesting. He was willing to lay out a lot of money for the data, yet he didn’t have the wherewithal to capture this level of granularity in his live trading. So what’s the point? He might come up with a great system, but if he’s trading from a home computer with a cable modem he’ll either never see those ticks (since some data providers don’t update with every tick) or experience so much latency that his trades will bear no resemblance to those in his backtest.

It’s better to keep things consistent: if the broker through whom you execute your trades also provides intraday data, trade and backtest with this price data. And be realistic about the kinds of fills you can expect. If, for instance, you're trading off a volume chart instead of a time chart and your signal fires on the first bar of, let's say, five trending bars that occur in the course of a minute, do you really think you'll be filled anywhere close to your signal?

1 comment:

  1. Tradestation keeps on their servers 3-6 months (can't remember exactly) of tick data for stocks and futures... archiving it is simply a matter of your hard drive space.