NinjaTrader 8: Backtesting Natural Gas (NG)
What if your backtest on Natural Gas futures showed a profitable edge, only to lose money in live trading because of a gap you didn't simulate? This sce...
What if your backtest on Natural Gas futures showed a profitable edge, only to lose money in live trading because of a gap you didn't simulate? This scenario is common when traders ignore the unique volatility of NG contracts during overnight sessions. Natural Gas futures are notorious for extreme price swings that occur outside of regular trading hours. Unlike more stable equities, energy contracts often open with significant gaps due to weather reports, inventory data, or geopolitical events released while the market is closed. If your backtest assumes continuous price movement, you are modeling a reality that does not exist for this specific asset. Gap Simulation is the process of accounting for price discontinuities between the close of one session and the open of the next. In a standard backtest without this feature, an algorithm might assume it can exit a position at the previous close price, even if the market opens 15% lower. This creates a false sense of security in your strategy's risk profile.