Backtesting and Diversification – The Essentials for Price Following

There is always the inevitable debate between those who think backtesting is a waste of time and those who treat the process like gold. This argument typically splits us into our two major trading philosophies we have discussed before…….. that of prediction, where the emphasis is placed on recent market conditions (hence backtesting long data sets is meaningless) and that of price following (where future conditions are unpredictable and we like to test our systems over a broad set of market conditions in the past to see how well our systems manage risk).