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Trading At the Speed of Pips
By Darren Merwitz | July 13, 2007
Developing systems is difficult enough as it is. And I’m a big proponent of garbage in garbage out, i.e. you can’t rely on your results unless the data that you’re using to generate those results are accurate. So it is important to be sure that any data used in backtesting is reliable.
But where do you draw the line for the effort consumed to track down and obtain reliable, accurate data? There is always more accurate data out there. There is always data going further back. There is always a higher resolution. There is always data with more information.
But at some point, you have to have confidence that the data you have to test is a sufficient approximation of the data your are going to execute on, despite not being 100% perfect. Otherwise you will get lost in the detail and never get to the actual strategy development. This is especially true in the forex market which is decentralized and thus has no true price.
There is also another issue, which in my mind is just as important. If the strategy you are using cannot survive because your data may be a few pips off, how robust could it possibly be? I’m obviously excluding high frequency, arbing and scalping strategies, but if you have a standard alpha-seeking strategy that dries up because your data is 2 pips off the executable price you would have experienced would you really trust your live money to it?
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Topics: Systems Trading Blog |