New Backtesting Course!
Learn To Develop Trading Strategies - Historical Backtests And Performance Statistics Improve Your Trading -
A Premium Strategy Included
Do you have an idea of how to make money? Make a backtest and find out!
New Edition: Backtesting Course is out!
"Gurus" in the media rarely quantify their predictions. Why? Because they are almost never correct. No proof is given on the prediction's reliability and profitability. But the good thing is that you can find out yourself!
You'll learn this in our backtesting course:
- How do you know if you're going to make money if you have not tested your trading idea or pattern?
- How big are your setbacks along the way going to be?
- What is the win ratio of your strategy?
- Is your strategy robust or likely a result of luck or randomness
- A premium trading strategy is included
The course covers the following topics/lessons (written course - no videos):
- What is backtesting?
- Pros and cons of backtesting
- How to optimize a backtest
- In sample vs. out of sample backtesting
- Incubation
- Correlation - how to put strategies together
- Survivorship bias
- Strategy performance metrics
- Bad data - garbage in, garbage out
- How to find trading ideas
- Backtesting journal
- Common mistakes in backtesting
- Curve fitting
- Can curve fitting actually be good?
- Different asset class - same strategy?
- Backtesting software
- Getting backtesting data
- Getting started
- Bonus: A premium trading strategy from our strategy list
FAQ:
What is backtesting?
A backtest has strict rules for when to buy and when to exit. In other words, you can code the strategy and find out with 100% certainty how the strategy has performed in the past. Thus, this is a backtest on historical data and strict trading rules. That is why it’s called a “back test” (history). We can argue it’s a kind of quantified technical analysis – technical analysis backtesting.
Does backtesting require coding skills?
No, you can manage well by using Excel. However, we recommend learning the code of a trading platform, for example Amibroker, Tradestation, Ninjatrader, etc. You'll master the basic with just a few weeks of trial and error.
Do I need to have trading experience?
No, but any experience is (of course) a plus. The more experience you have, the more you understand of your backtests.
Does it cost money to backtest?
Excel or Google Sheets (free) can help you a long way. Any trading software is not expensive. Amibroker charges 299 for a lifetime license, for example.
Disclaimer
Quantified Strategies (SIA Lofjord) is not an investment advisor. The content and information provided are educational and should not be treated as financial advisory services or investment advice. Trading and investment in securities involve substantial risk of loss and is not recommended for anyone that is not a trained trader or investor – it shall be conducted at your own risk. It is recommended that you never risk more than you are willing to lose. Leverage can lead to substantial losses. Any use of leverage, margin, or shorting is at your discretion. Quantified Strategies (SIA Lofjord) is not responsible for any losses that occur as a result of its content and information. Always use a demo account for many months before you try live trading. Trading requires hard and systematic work – there is no easy money.
Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Commissions and slippage are not included. Also, Since the trades have not been executed, the results may have under or overcompensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs, in general, are also subject to the fact that they are designed with the benefit of hindsight. No representations are made that any account will or is likely to achieve profit or losses similar to those shown.
Backtesting is a method used in finance, particularly in quantitative trading, to assess the viability of a trading strategy or an investment model. Essentially, it involves applying a trading strategy to historical market data to see how it would have performed over a specific time period.
Here's how it typically works:
Formulate a Strategy: Traders or investors develop a set of rules or criteria for buying and selling assets. This could involve technical indicators, fundamental analysis, or a combination of both.
Apply the Strategy: The formulated strategy is then applied to historical market data, typically ranging from several months to several years.
Analyze Results: The performance of the strategy is evaluated based on various metrics such as profit and loss, risk-adjusted returns, maximum drawdown, and other relevant factors.
Optimize (Optional): Based on the results, the strategy may be refined or optimized to improve its performance.
Backtesting is a valuable tool because it allows traders and investors to assess the potential profitability and risk of a trading strategy before risking actual capital in the market. However, it's important to note that backtesting has limitations, including the fact that past performance does not guarantee future results, and assumptions made during backtesting may not always hold true in live trading conditions. Therefore, backtesting should be used as part of a broader due diligence process rather than as the sole basis for trading decisions.