Stocks & Commodities V. 27:01 (48-53): Walk-Forward Testing by Jack L. Weinberg
Here’s how you can use walk-forward testing as a tool to compare trading systems and gain insight into comparing the future performance of systems.
Recent advances in trading system software and powerful hardware capabilities have provided a valuable tool in evaluating the future viability of trading systems — walk-forward testing. This technique allows the trading system developer to quickly assess if the system will survive (or even prosper) in the future. It does this by segmenting the past into in-sample and out-of-sample periods, and by optimizing each successive in-sample period to provide the values for the next out-of-sample period. In addition, testing can be used to compare one system with another. Walk-forward testing provides a unique insight into comparing the projected performance of trading systems.