Dividing historical data into multiple sets to provide for in-sample and out-of-sample testing can provide traders a practical and efficient means for evaluating a trading idea and system. Since most traders employ optimization techniques in backtesting, it is important to then evaluate the system on clean data to determine its viability. Online resources like Quandl’s futures page offer extensive data for use in your analysis. Continuing the out-of-sample testing with forward performance testing provides another layer of safety before putting a system in the market risking real cash. Positive results and good correlation between in-sample and out-of-sample backtesting and forward performance testing increases the probability that a system will perform well in actual trading.
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