Interpolated ticks are not ticks

[Fairman]

Interpolated ticks are not ticks

Some platforms generate ticks from bar data. The process creates artificial ticks between the open, high, low, and close, with spacing and sequence based on a formula.

These synthetic ticks look real. They fill the strategy tester, and the results look plausible. They have no relationship to actual market microstructure.

A strategy that depends on tick behaviour, such as one that exploits quick reversals after spikes, cannot be tested with synthetic ticks. The reversal pattern in the data came from the generator, not the market.

Another issue is spread. Historical bar data often has a fixed or average spread, which does not reflect the real variable spread. Backtests using it underestimate costs in the exact hours when costs are highest.

Honest testing needs real tick data with real spreads, ideally from the same broker used for trading. Sources include the broker's own history, third-party providers, and personal recording.

The quality of the data decides the quality of the conclusion. A fast scalper using bar data is working with a drawing of a landscape, not the landscape.

What type of data is the backtest running on, and does it include real variable spreads?