Quant investing: What is forward testing?
Forward testing is a method of evaluating the performance of a trading strategy by applying it to real-time market data and observing how it performs in real-time, on data that the strategy has never seen before. This is in contrast to back testing, which involves applying a strategy to historical data and observing how it would have performed in the past.
The main purpose of forward testing is to determine the effectiveness and robustness of a trading strategy in real-world market conditions. It allows traders to assess the strategy's ability to adapt to changing market conditions, as well as its potential for profitability in the future. Forward testing is also useful for identifying potential flaws or weaknesses in a strategy that may not have been apparent during back testing.
How do you execute forward testing?
There are several ways to conduct forward testing, including:
Paper trading: This involves simulating trades using real-time market data, but without actually placing any trades. This allows traders to observe how their strategy would have performed in real-time market conditions without risking any capital.
Live trading: This involves actually placing trades in the market using the strategy being tested. This allows traders to observe how their strategy performs in real-time market conditions with real capital at risk.
It's important to note that forward testing can be affected by the survivorship bias, which means that the strategy performance may be affected by the fact that only the performing strategies are used to test.
In summary, Forward testing is a method of evaluating the performance of a trading strategy by applying it to real-time market data and observing how it would have performed if it had been used during the period of time that the data represents. It allows traders to assess the strategy's ability to adapt to changing market conditions, as well as its potential for profitability in the future.
Never miss an update
Enjoy this wire? Hit the ‘like’ button to let us know.
Stay up to date with my current content by
following me below and you’ll be notified every time I post a wire
Hue Frame is the founder of Frame Funds Management. Frame Funds is a quantitative funds management company, that manages assets for institutional and wholesale clients, and proprietary funds.
........
This information is prepared by Frame Funds Management Pty Ltd (ACN 608 862 442) (Frame Funds, we or us) is a Corporate Authorised Representative (CAR No. 123 9068) of Primary Securities Limited (ACN 089 812 812 635) and is intended only for "wholesale clients" within the meaning of sections 761G and 761GA of the Corporations Act 2001 (Cth). This material is not intended to constitute advertising or advice (including legal, tax or investment advice) of any kind. These materials are not to be distributed to any person who does not qualify as a wholesale client and must not be copied, reproduced, published, disclosed or passed to any other person at any time without the prior written consent of Frame Funds. Primary Securities Ltd (ACN 089 812 635 635, AFSL 224 107) is the Trustee of, and issuer of units in, the Frame Futures Fund and the Frame Long Short Australian Equity Fund (Funds). In deciding whether to acquire, or to continue to hold, units in the Fund please read the current Information Memorandum available from Frame Funds. Past performance of the Funds is not a reliable indicator of future performance. The value of an investment in the Funds may rise or fall. Returns are not guaranteed by any person. Total returns are calculated before tax and after ongoing management costs. In preparing this information, we have not considered your investment objectives, financial situation or personal circumstances and therefore the Funds may not be suitable for you. Neither Frame Funds, Primary Securities Ltd, nor any of their respective related parties, directors or employees, make any representation or warranty as to the accuracy, completeness, reasonableness or reliability of the information contained in this publication or accept liability or responsibility for any losses, whether direct, indirect or consequential, relating to, or arising from, the use or reliance on any part of this material. Any rates of return, forecasts or estimates contained in this publication are not guaranteed. The content of this publication is current as at the date of its publication and is subject to change at any time. It does not reflect any events or changes in circumstances occurring after the date of publication.
5 topics
Hue Frame is the founder of Frame Funds Management. Frame Funds is a quantitative funds management company, that manages assets for institutional and wholesale clients, and proprietary funds.
Expertise
Hue Frame is the founder of Frame Funds Management. Frame Funds is a quantitative funds management company, that manages assets for institutional and wholesale clients, and proprietary funds.
Expertise
Comments
Comments
Sign In or Join Free to comment
most popular
Funds
If 24 LICs ran the Melbourne Cup, which would be our favourites
Affluence Funds Management
Equities
Don't let all time highs stop you buying this "bull" market
Centennial Asset Management