How do I learn how to back test?

G

gotta_trade

Hi Everyone,

I am not familiar with "back testing" trading strategies.

(I have always "forward" tested any type of new strategy, I would test it by trading small size, and make adjustments as I went along)



I don't know how to go about back testing.

I checked out Wealth-Lab. The formulas and the things that you program in to write the formula seemed very complicated.

(maybe it's like chess or craps, at first it seems difficult to understand, but once you figure out the basics, the game becomes somewhat clear)


Question:

How does a person who's not safisticated in the area of back testing go about doing it?

Do I just put the time and effort in Wealth Lab and figure out?

Is there a Back Testing for Dummies book, or any other book, that would lay a basic foundation for me?

What does TradeStation do? Is it the same type of thing?

Are there other programs and/or websites that serve the same purpose?

Basically, how do I go about learning how to back test different trading ideas? Where do I begin?


Thank You,
gotta_trade
 
Simple.

Test... Trade... Lose some and make some...

Test... Trade... Lose less and make little more...

Test... Trade... Lose less and make little more...

and on and on...
 
Quote from WDGann:

Simple.

Test... Trade... Lose some and make some...

Test... Trade... Lose less and make little more...

Test... Trade... Lose less and make little more...

and on and on...
More...


Thanks, but that doesn't answer my question.
 
I'll use Ned Davis's 4% Swing sytem as a Tradestation example:

Tradestation is a toolkit, a little like a spreadsheet. It is "dumb" until you program it to do something. They do supply lots of examples, there are more available at many websites, many for sale (of course), and they provide video training for free and also have paid training classes at a number of major cities.

This system is simple:

Buy when the price is 4% higher than the lowest low attained while short.

Sell when the price is 4% lower than the highest high attained while long. It is always in the market.

This will give you an idea of what the code looks like


Input: Bkout(4.0);
var: hh(0), ll(0), mp(0), LE(0), SE(0) ;

mp = marketposition;

if mp = 0 then begin
hh = maxlist(hh,high);
ll = minlist(ll,low);
end;

le = LL * (1 + 0.01*bkout);
se = HH * (1 - 0.01 * bkout);

buy next bar at the le stop;
sell short next bar at se stop;


if mp = 1 then begin
hh = maxlist(hh, high);
ll = 999999;
end;

if mp = -1 then begin
ll = minlist(ll, low);
hh = -999999;
end;


I ran this on 10 years of the Value Line Arithmetic Index and the results are attached as 4.0%Swing.mht.


I also "optimized" it by looking at different breakout percentages, ranging from 0.25% to 7.0% in 0.25% steps.

1.25% had the most profit while 5.5% had the highest profit factor.

The 3 sets of results are attached-I hope.

This should give you a little idea of what you can do. CAUTION: This is somewhat of an art and takes time to learn.

DS
 
Looks like the attachments did not make it.

Here is the one for 4%.

Total Profit $1739
Win% 44
Profit Factor 1.7
AvgTrade $5.72

NOTE these are based on one unit of the average. The output is multiple pages.
 
... But i think what GOTTA_TRADE wants to know (i do as well), is where can one get started in learning how to program and back test their systems.

Where should one start?
I have been told to read over some basic Pascal programming in order to learn the Wealth Lab coding.

:( But I was too busy looking for the next trade and never put enough time into learning the code.
 
Both WL and TradeStation come with help files-where every step pretty much explained. you will found examples and code as well. also-there is a groups on yahoo and forums all over the place, related to programming in WL and TS. if you lazy to spend some time to learn how to programm and backtest your ideas-you will pay the price for it anyway. how many years will take for you to figure out, if you right or wrong in your ideas?
backtesting will give you idea,to what to expect from trading method that you will use. will you put your money to game with negative expectancy? it will perform all calculation and will show you, what you will earn, if you trade you idea over some given period of time in past. Would you trade the method, where you lost 90% of you capital in 1 year according to backtesting?
 
Quote from gotta_trade:


Are there other programs and/or websites that serve the same purpose?

Basically, how do I go about learning how to back test different trading ideas? Where do I begin?
More...

Check out Investor RT at www.linnsoft.com. I've been using IRT for three years. Like you, I'm not interested in programming code. But with IRT you can run virtually any conceivable backtest by using their extensive list of indicators, and making adjustments through menu selections. Much easier to learn, faster, and a heck of a lot more fun. And excellent support.
 
We have developed a backtesting software Stock Predictor. You do not need to know any complicated formulas or language, just point on the chart and record "Buys" and "Sells" and see the performance over time.

Free trial is available at
http://www.ashkon.com/predictor




Quote from gotta_trade:

Are there other programs and/or websites that serve the same purpose?
More...
 
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