Trend Following Backtesting 101

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Dear Michael, Hello from Singapore!

I’ve been listening to your podcast for a month or so now and I’ve picked up your book Trend Following. Like many others my investment strategy thus far has been to buy stocks based on a little bit of fuzzy research and then hope that prices rise. I always thought that it was “safe” and that any sort of technical trading was “risky”. I know better now. Reading your book I was struck by how much emphasis you place on the psychology behind successful trading. It is a breath of fresh air as the book departures from much of what I have read on trading and investment. Moreover, as a professional economics researcher focusing on behavioral economics I really do appreciate the extent to which cognitive biases affect much of what we do. I’d like to ask you a question on backtesting. You touched on the topic at various points in your book and my understanding is that thorough backtesting is necessary to building any successful trading system. Though it’s not a difficult thing to understand how to do, I think many people get stuck on the various logistical issues surrounding backtesting. Where does one get price data? Given budget constraints what is a good platform for one to backtest on? I’d like to know if you have any advice for a novice trend follower on getting started with backtesting.

Thank you for your time.

Best Regards, [Name]

Thanks for the nice words! I try to give a ton of resources across my inexpensive books (www.trendfollowingbible.com), free podcast and free blog.

There are many third party testing apps (i.e. TradeStation), and data from CSI data is a nice choice. For the bulk of my personal advice, support and training go here. Built into that is personal support for each client’s unique questions and issues.

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You might like my 2017 epic release: Trend Following: How to Make a Fortune in Bull, Bear and Black Swan Markets (Fifth Edition). Revised and extended with twice as much content. Out April 24th 2017.