"Should I include delisted stocks in my backtests?"
By Dave Mabe
Here's a question from Helena (name used with permission):
Helena:
Do you include delisted stocks in your backtesting?
Dave:
Great question, and you might be surprised by my answer.
No, I don't bother.
I can hear some traders being horrified by this, but here's why.
I'm day trading, which, in addition to having more profit potential than holding overnight, allows you not to worry about delisted symbols.
Think about it: delisted symbols are companies that, for the most part, went out of business.
The way that would be more likely to affect your backtest is if:
Your strategy holds trades for several days
It has a relatively small number of trades, so an outlier could more easily affect the results
Your strategy goes long, and it holds overnight
So many issues with data like this resolve themselves with day trading and starting with many trades.
This is one of those issues I see some traders get stuck with - trying to create the perfect conditions for their backtest.
Do you want to be statistically perfect or do you want to make money?
Thanks for the question and for sharing with the group, Helena!
-Dave
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