Everybody who wants to invest in automated trading software like the CryptoClub assumes that backtesting is all that matters in determining the efficacy of a trading software. Whether it is this trading software or any other automated trading system you must forward test after backtesting.
Why is forward testing important?
Since the system is automated you need not monitor it hawk-like all through the day but having said that what will you do if good setups happen when you are fast asleep. Then there is the possibility that all live charts are different from backtesting charts so how will you know how efficient your system is? And finally, this is a psychological point, you will trade differently when real money is involved.
It is, therefore, necessary that you before you plunge full-fledged into trading you test out the method in a situation which is as close to real life as possible.
What is forward testing?
While backtesting is necessary to garner valuable information on how a system works it is not complete by itself in the evaluation of a trading system. Forward testing is necessary to validate the data inferred from the backtesting. This performance test is like the litmus test that will determine how efficient a given strategy is in real life. Thus, the viability of a trading system can be determined by the correlation between backtesting and forward testing. Forward testing will highlight any coding mistakes too.
How is forward testing done?
Forward testing is also known as paper trading because trade is carried out on paper. Actually, you can accept a demo account and test your strategy or open a live account for a minimal amount( money that you can afford to lose).
Forward testing will basically simulate a real-life climate and parameters and analyze how your strategy fares in the given circumstances. For best results ensure you carry out at least 100 trades before you can step into the real world.
In forward testing, all entries and exits must be written on paper along with the profit and loss. It is crucial that a trader notes every exit and entry diligently for a thorough evaluation of a system and according to the system’s logic or the results will not be accurate.
A common confusion people have for forwarding testing is which account to choose- demo or open a live account. As already mentioned, the method of trading is different when real money is involved. Hence, if you are serious, then try out your strategy in a real live account with the minimal amount.