Hi folks.
I'm trying to get my head around the lengthy process of backtesting strategies. I know that a lot of people find this is a very important part of their trading, and are keen to know that their strategy will be profitable before they engage with it.
I'm keen to learn how people view this.
Back testing takes an enormous amount of resources in terms of time and if someone is going to be managing their trades anyway and using price action, observation of technicals and to justify when to enter and where to exit, is it necessary to define some rule which, in terms of supply and demand is arbitrary, is weighted towards the past and doesn't add to the recognition of what you are seeing?
Aren't defined trading strategies (enter when market trending, at test 50 EMA retrace, with a trailing stop of 3 ATR) simply an effective way of keeping the trader disciplined to principles, rather than a rigid holy grail rule which one can plug into an algo, set and forget and not have to manage?
It feels that it is more important to know why a strategy works or doesn't work, to know what the history R ratio has been.
If you accept the idea that the average retail trader has to manage their trade anyway, that breakouts occur, pullbacks occur, markets trend, and markets range, risk needs to be quantified and managed and targets need to be set per principles, then what difference does entering lots of data on a spreadsheet of 1 way of decoding the decision pathways above, do to a retail traders bottom line? What does it do if they do this repeatedly? Does it depend on personality? Can you be a profitable trader without it and are you likely to blow up an account if you don't?