What You Need to Understand About NinjaTrader 8 Backtesting

The Limitations Behind NinjaTrader 8 Backtesting

NinjaTrader 8 backtesting is a common practice with traders but is it going to produce results that are useful? Traders will use backtesting to try and test strategies and this practice has been going on for quite some time.

Although past results do not mean the same will hold true for future results; most traders used ninjatrader 8 backtesting information if they had it. Backtesting in NinjaTrader is not all bad, but there are some things you should be aware about when doing it.

The Problems

News Events are Ignored
When back testing, news events are ignored meaning you could be firing off a trade right before a news event and that outcome (for better or worse) should not be included. With hundreds of news events every month, this is a sure way to get unreliable results.
Price Action is Ignored
We have all been in a situation where we're about to enter the trade and you don't because of how quick and fast price might be moving at that time. When back testing, this sort of emotion or hesitation isn't included which can make your own results quite different.
Open / Close Times Ignored
You would probably never take a trade just before the market is about to open, or just after - but when you back tested these market open and closed times are ignored.

News and Order Entry While Backtesting

When you do backtesting (automatically or manually) chances are news events that are released are not being included in your results.

If non-farm payrolls is coming out, and your backtesting triggers a trade just before the news releases, then regardless of the outcome you probably never would have taken that trade yourself.

The same would go for a situation if you trade Crude Oil and you ignore Wednesday inventory numbers. If software of yours determines to place a trade, would you have done it if trading manually yourself?

Chances are, you wouldn't be placing orders right before news events since the outcome could be no better odds than a coin flip, so your results (for better or worse) are going to be incorrect and misleading.

When you think about all the news events that come out - if you wanted to avoid the news your back testing strategy would need to watch for news and pause or halt trading and wait for the news to pass, measure some sort of momentum to know price has settled after the news and then reactivate the trading strategy.

Are you doing this with your current back-testing? If not your results are misleading you.

What is Better than Backtesting?

Forward Walking Tests

The best thing about a forward walking test is it's going to be a lot more accurate. The downside to doing forward walking tests in NinjaTrader 8 is the time it will take you since you can't run it through an automated platform. But that is also why your accuracy of your results should be more reliable.

An example of a forward walking test would be if you traded on a demo account with live quotes. Another way you can do this but have it be quicker is by using the NinjaTrader 8 market replay.

Market Replay for Forward Walking Tests

You can download data in NinjaTrader 8 (within the platform) and then replay that data as if it was happening live. You can then test your strategy. For example we use XABCD Patterns so you can attach a pattern indicator to the chart and then trade the patterns according to your execution plan.

Here is a video that will show you how to use market replay data.

Put News Events Directly On Your Chart

If you need to get news put directly on your NinjaTrader 8 charts you might want to consider our XABCD News Pro which will allow you to map on the current weeks news events starting on Sunday and ending on the upcoming Sunday.

This will help you during your live forward walking tests by notifying you where your going to get news release in the market. This will help in your NinjaTrader 8 testing by pointing out where those emotional periods are that you'll want to stay out of the market.

NinjaTrader 8 Backtesting Vs Reward Walking Tests

Forward walking tests allow you to get a much more accurate sample set of trade results. It can do this by letting you factor in news events and allowing you to look closely at price action, when the markets open and closes to prevent taking trades before and after as well as many other factors.