What is “Walk-Forward” Testing?

Walk-forward testing is the first real step in testing any system on live data. A trader should be somewhat confident that the system or method can produce results in line with the hypothetical results received from back testing.

At this stage of testing, it's important to watch a trading system or method run over live data for a period of weeks or months until a large, statistically valid universe of sample trades have been reviewed. By using a walk-forward trading process, you can gain a better understanding of the intricacies involved in making sure that the system is successfully executed in real-time.

Many trading systems or methods seem to work well during back testing, but fail miserably when it comes to live trading. Therefore, any trading method has to be tested under real market conditions before going live with real money, by using a simulator or a paper account.

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