Two Steps Forward, One Step Back If you've been around trading for a while, you probably have seen system vendors tout their performance results via "backtest" or "walkforward test" reports.  Unfortunately, most people think these two types of tests are the same, or virtually the same.  Nothing could be further from the truth. So, what is the difference between backtests and walkforward ("out of sample") tests? In a nutshell, with traditional backtest optimizations you take all data, optimize your parameters and then take the best parameters and start trading it. Traditional backtesting produces an excellent looking, almost-to-good-to-be-true equity curves for the past, but rarely works as well going forward. This method is what you typically see in ads, proffered many times by unscrupulous system sellers. Walkforward, on the other hand, takes a small chunk of data, optimizes the parameters, and then applies those values to the next chunk of UNTESTED data. Those new results become part of your final results, one piece at a time. Since walkforward testing calculates the performance on untested and unoptimized data, walkforward is a truer indication of future performance. If you are looking at any track record, first and foremost, look for real time, audited results or those linked to actual trading accounts.  Nothing is more realistic than that.  If actual results are not available, walkforward results are the next best thing.  Compared to real time performance, walkforward results will usually be somewhat optimistic, however.  Backtest results, on the other hand, are typically so full of hindsight, over-optimization and curve fitting that these results should be VERY carefully scrutinized.  Many times, backtest results are so full of intentional or unintentional errors that the results are worse than useless.  If the results look too good to be true, they probably are. So, be careful when looking at performance results.  Take the time to understand what you are looking at, and how it was created.  Look for real time results first, then walkforward results.  Beware of backtest results. Here's a link that graphically describes the process: http://www.kjtradingsystems.com/walk.html About Author:  Kevin Davey is an award winning private futures, forex and commodities trader. He has been trading for over 19 years. In each of the years 2005-2007, Kevin achieved over 100% annual returns in a real time, real money, year long trading contest, finishing in first or second place each of those years. Kevin maintains a website, http://www.kjtradingsystems.com, where you can find useful free information on trading. Also, visit his site and learn how you can follow Kevin's trades as they happen. Copyright, Kevin Davey and http://www.kjtradingsystems.com. All Rights Reserved. ________________________________________________________________________ Reprint Rights: You can freely reprint this article in its entirety, provided that it is reprinted without modification, and that the "About Author" information is also included. Return to Article Page