What are the Basics of Forward Performance Testing?

Forward performance testing is generally referred to as “Paper trading” because of trading of all trades executed on paper only. All trading or exist of shares are documented on paper along with incurring profits or loss without actually executing a trade. It’s a means to evaluate how a trading system would work given a set of values.

Forward performance testing provides traders a means to evaluate a system along with another set of out of sample data. Want to know more about In sample or out of sample data. It is a process of actual trading involving the system’s logic in real or live trading.
A crucial factor to keep in mind in forward performance testing is to follow the system’s logic exactly. If not, then it turns very difficult not impossible though to evaluate the steps of the simulation exactly. Traders at the same time need to be very honest about all trade entries or exist without trying to skip any intentionally or unintentionally. This means, if a trade has occurred following the system’s logic, it needs to be documented and evaluated.
Nowadays many brokers offer a simulated trading account which helps in creating a semi-realistic atmosphere to practice trading and where all the trades are placed and all the gains or losses are calculated.

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