Filtering Economic Releases in Backtesting

A visitor to the site, Forex Trader brought up a very good question that I have considered.  His question was:

Could you shed more light on how you handle major news releases in your
backtesting: do you leave them as is, or do you filter them out? If you
do filter them out how do you deal with the gaps?

I'm assuming that he considers the major US economic releases to be the "major news releases." The short answer to this question is no, I do not filter them out.  I have not yet built this into the logic of the backtesting script.   A majority of the entries though don't occur during a US major economic release but the entries that did were not filtered.  I realize that because of this, the results are not totally realistic but it's really hard to simulate real world results in any backtesting script.  I would have to go back to find out historically, when certain news releases occurred and then not register a trade during that particular time period. 

The backtesting results I sent out yesterday do take the spread into account but certainly not slippage.  My philosophy in backtesting is that I don't consider successful results the end all to putting a system into production with live money.  I think that backtesting is very beneficial to finding out if a certain system should or should not be explored further.  If this system showed terrible backtesting results with a big fat loss with 2 years of data, I might just move on to something different.  The important step after backtesting is forward testing with a demo account to see if these "utopian results" can be obtained.  The point is, I'm not looking for backtesting to give me the absolute true and realistic story because I don't think this is possible.  I'm just looking for it to give me some indication of the viability of the trading system.  Once you get intimately involved with your trading system by forward testing or by trading it live, you can come to a pretty good conclusion of its worth to you.

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