In contrast, the process of
Walk-Forward Analysis (WFA) is a way to model the
periodically repeated re-generation of trading rule
parameters based on existing historical data, with
subsequent application of those rules to later data
that was "unseen and unused" by the system at the
point the
parameters were generated.
In other words, WFA tests
whether putting a particular trading model through
the optimization process over some period of
historical data (a defined past period) results in
tradable predictability over some period of
subsequent data (a defined future period). The
past period is commonly called the "in-sample" (IS)
period, and the future period is commonly called the
"out-of-sample" (OOS) period.
A single Walk-Forward
Optimization (WFO) looks like this:
The WFO answers the question:
"If I had reoptimized this often, re-choosing my strategy parameters (per a rule/fitness
function), then traded this far forward each
time using those settings, how would my account
balance have changed over the entire period."
Famously written about by
Robert Pardo in his book Design, Testing and
Optimization of Trading Systems, the
Walk-Forward Optimization (WFO) has for
many years now been considered to be the "gold
standard of testing" for giving a trader confidence
to trade a system going forward.
CodeForTraders is pleased to
make available powerful walk-forward analysis
software for serious traders.
Platform-integrated WFA
software:
AmiBroker Platform
Stand-alone WFA software for
TradeStation, MultiCharts, and
AmiBroker users:
Diamond Backtesting
with Walk Forward Manager (BTWFMgr) by
Burkhard Eichberger.
