I'm currently trying to develop a Weekly LONG System for trading the UK Market (FTSE100), and would now like to begin initially backtesting some of my ideas.
The EOD data which I want to test is between 1999 and the Present Day.
Looking at the FTSE100 Index over this same period:-
Year 1999 & 2000, the index remained in a Range.
Year 2001 & 2002, the index fell sharply, and from Year 2003 onwards, the index has steadily risen.
I'm also aware that ideally I should have both an in-sample and out-sample for Backtesting purposes.
As a result my current assumption is:
1. To use the last 2-3 years (2005 onwards) for the out-sample, as these are the most recent years and therefore should be fairly close to the results of the system, when it is initially traded live.
With the remaining 6 years (1999-2004), I was going to break these down and test them in "2 year" blocks.
1) 1999 & 2000 : To assess how the system preforms during a Ranging Period.
2) 2001 & 2002 : To assess how the system performs during a BEAR Market
3) 2003 & 2004 : To assess how the system performs during a BULL Market.
Assuming each of the above tests delivers results which are deemed acceptable, I would then go on to backtest the system again using ALL the in-sample data (1999-2004).
If the results of this test also proved acceptable, I would then use the Out-Sample Data.
However, as this is my first system, I would welcome any comments from the more experienced System Developers on whether the above is the best method for achieving a reliable backtest result.
All comments welcome.....
PS. I've also posted this question on another forum, as I would to get as many comments as possible before decided on my final backtesting "method"