The Path to Confidence:
Forward Testing a “Too-Good-to-Be-True” Strategy
By Michael Nauss, CMT
Every Monday I give away a free trade setup straight from our algorithmic vault. But today’s post — part of my Wednesday “rant” series — is about something deeper: the process of proving a system works before you ever size up or pitch it to others.
Two Mondays ago, I introduced a new momentum strategy. The backtest looked amazing. A little too amazing. And I’ve been trading long enough to know that “line-go-up” charts deserve skepticism — not celebration.
Instead of rushing to deploy it in Stats Edge Pro, I did what any serious systematic trader should: forward test it.
Here’s the equity curve that sparked the doubt. While it’s been backtested over 25 years, the lack of any major drawdowns gives me pause. So what do we do?
We trade it. Live. With real money. Just much smaller.
🔍 Why Forward Testing Matters
Forward testing — a fancy term for "real-world testing" — is the bridge between a backtest and live trading. It's the stress test that reveals:
Can I get the same fills?
Does slippage kill the edge?
Do stop losses and exits behave as intended?
This isn’t paper trading (though that’s okay too). This is small capital, same account, full attention.
I shared every signal, entry, and stop with Stats Edge Pro members — labeled “beta” in our Discord room. The goal? Track the system live. No sugar-coating. Just data.
🧪 First Trades & Early Results
MEHCQ: Yep, the bankrupt one. Trade filled a few cents above the signal but exited right on time.
PLTM & PPLT (Platinum ETFs): Fills nearly matched the backtest. Still holding some with discretion due to macro view.
That level of precision is what I’m looking for. Not because I care about pennies — but because that tells me the system is sound.
📌 What’s Next?
I’m not interested in trading a fantasy. I want to see a loss. Weird to say, but I need a few losing trades to feel confident in the exits, stop logic, and position sizing.
If the next few weeks continue to align, it gets integrated into Stats Edge Pro — which is undergoing a huge redesign to better separate swing, day, and investing systems.
So if you’re on the journey to build your own system, this is the roadmap:
Build the backtest.
Forward test with small capital.
Reconcile trades to your logic.
Only then, scale.
If you just want to skip the coding and use my strategies instead — come hang out with us at www.statsedgetrading.com
THE FINE PRINT: Hypothetical or simulated performance is not necessarily indicative of future results. Hypothetical performance results have many inherent limitations, some of which are described below. Also, the hypothetical results do not include the costs of subscriptions, commissions, or other fees. Because the trades underlying these examples have not actually been executed, the results may understate or overstate the impact of certain market factors, such as lack of liquidity. Simulated trading services in general are also designed with the benefit of hindsight, which may not be relevant to actual trading. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of the financial risk of actual trading.
Don't be fooled by early wins. A true forward test takes a long time. And, even then, it can still blow up nicely.