Premise for backtesting criteria - Bear Market Trader
My take on establishing criteria on what to backtest.

Premise for backtesting criteria

Premise for backtesting criteria


I haven’t uploaded a blog post for a lit­tle while. That is not because I haven’t been spend­ing time on trad­ing. I have. It is just that I want­ed to focus more on trad­ing than blog­ging. Which I have and now I have come to fur­ther assump­tions on the mar­ket. Now, I have to go back and test these assump­tions to see to what extent they hold up. 


So what I want to do is look for pos­si­ble pat­terns in the dif­fer­ent trad­ing ses­sions. For exam­ple, I already know that the high­est volatil­i­ty is  dur­ing the Lon­don and New York trad­ing ses­sions. This is when the biggest moves hap­pen. I’ve also learned that at the open­ing of each trad­ing ses­sion the direc­tion is usu­al­ly estab­lished for the rest of the trad­ing ses­sion. This is not always the case but this these are the para­me­ters for the premise that I want to backtest. 


Anoth­er part of the premise is the assump­tion that the biggest ‘lev­el-chang­ing’ move hap­pens on the Fri­days. There can be oth­er days that there is a sig­nif­i­cant move but ‘usu­al­ly’ not a lev­el-chang­ing move. By lev­el-chang­ing I mean that the price range changes dras­ti­cal­ly either up or down (ie. go from the 50–52 price range to the 52–54 price range). 


These lev­el chang­ing moves I can track by using the Fibonac­ci draw­ing tools. I usu­al­ly just use the Fibonac­ci retrace­ment tool. I have the assump­tion that when price action retraces above the 38.2 Fib. lev­el it will most like­ly con­tin­ue in the same direc­tion. If it hits the 50 lev­el we can not be so sure. If it hits the 61.8 lev­el we can expect a reversal. 


Targets of backtesting


  1. When a trad­ing ses­sion opens, does it actu­al­ly just trade in that direction?
  2. Is the lev­el-chang­ing move usu­al­ly on the Fridays?
  3. When there is a lev­el-chang­ing move, how do the Fibonac­ci lev­els behave? Is my assump­tion right?


If you would like me to post my results or would like to know more about them please con­tact me. 


Putting it into action


How am I actu­al­ly going to per­form the back­test­ing? Now that I have the premise for my back­test­ing I will ‘go back in time’ on the charts in a way that I pro­hib­it myself of see­ing the next can­dle­stick on the chart. Then I will fake tak­ing trades based on the premise of my assump­tions and gath­er results. How many times am I cor­rect and how many times am I wrong? What could I do bet­ter? How long back am I going to back­test? About two months. I believe after this I have gath­ered enough if the assump­tions used in my premise actu­al­ly hold up enough for fur­ther research and backtesting. 


Thank you


As always thank you for read­ing and let me know if you have any ques­tions or if you would like me to post my results. At this time I am not sure if I should or not. Go on… con­vince me I should. 



Day trader. Tech geek. Sim Racing Enthusiast.

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