Backtesting 3x etfs, accurate?

[bmn]

If we apply a strategy to a 6month, 5minute chart and show the standard TOS floating PL, to get a snapshot of a strategy's profit/loss, we would expect the results to be accurate for a stock. But what about for a 3x inverse etf, for example? I heard that these etfs adjust daily or more. Does this mean that a historical chart has candles that are not accurate to how they played out in real time? Would does that then mean tos floating PL would be skewed? If this is an issue for 3x etfs, would it also be an issue for more standard etfs like QQQ, SPY, IWM, and DIA?

 

[mashume]

Some light reading may be informative:
https://www.investopedia.com/articles/exchangetradedfunds/07/leveraged-etf.asp

https://www.investopedia.com/articles/investing/121515/why-3x-etfs-are-riskier-you-think.asp

They aren't adjusting things in the sense that the previous candles are incorrect. Candles are an historical record of price action on a given day and are immutable once set.

However, the behind-the-scenes-methods-in-which-the-etf-does-the-magic of the 3x long or short is both hidden away from us (mostly) and massively complex (usually) and not for the feint of heart (always).

Hope that helps with the ideas behind leveraged etfs.

-mashume

 

[bmn]

Some light reading may be informative:
https://www.investopedia.com/articles/exchangetradedfunds/07/leveraged-etf.asp

https://www.investopedia.com/articles/investing/121515/why-3x-etfs-are-riskier-you-think.asp

They aren't adjusting things in the sense that the previous candles are incorrect. Candles are an historical record of price action on a given day and are immutable once set.

However, the behind-the-scenes-methods-in-which-the-etf-does-the-magic of the 3x long or short is both hidden away from us (mostly) and massively complex (usually) and not for the feint of heart (always).

Hope that helps with the ideas behind leveraged etfs.

-mashume

Thank you, Mashume!

Funny you referenced those two articles, I had read them weeks ago and were probably what set off part of my concern. Those articles don't really specify how/when adjustments are made and if it would affect historical candles. Then I saw some highly leveraged etfs almost look to be a parabolic downward slope. Made me concern candles even at the 1 minute mark weren't necessarily in stone after set. I suppose some of the extreme degradation is handled with price reverse splits.

So, I really appreciate you sharing candles don't change after they occur.

"Candles are an historical record of price action on a given day and are immutable once set."

This gives me confidence to approach backtesting with confidence that there isn't post-occurrence modifications happening.

If anyone has a link or reference to confirm this, I would welcome it as a double confirmation.