The organization of commodity markets makes it very difficult to mirror trading reality without introducing some degree of distortion. Inadequate design of daily limit rules is perhaps the most common cause of distortions in trading performance results. Spot month trading without limits. Commodities trading with expanded daily limits. Changes in the size of daily limits over the testing period.
Commodities trade all day, then go lock-limit on the close.
A precise portfolio of commodity contracts must be defined for use with a history tester to reflect trading behavior, avoid liquidity problems and meet system logic and rollover requirements. The data base should be obtained from a reliable source to assure that errors have been eliminated and that the data is clean. It should be uniform for all commodities tested and should cover a multi-year period reflecting all types of market conditions. This minimizes possible bias and distortions due to choice of test period beginning and ending dates, selection of contracts included in the portfolio, erroneous data and seasonality. The extent of testing to be performed is limited by data acquisition cost and disk storage capacity considerations.