Overview: This free educational website is intended to allow you to compare popular technical trading strategies as scientifically as possible through backtesting. In general, it is pretty hard to consistently beat the market and you should be skeptical of anything that tells you otherwise. This site allows you to backtest some common technical strategies to see how they would have performed against the market and lets you screen for the stocks that meet your trading criteria. Strategies that backtest well, of course, do not guarantee success going forward but could have a higher probability of performing well. Backtesting also enables you to see the market conditions in which a certain strategy will perform well. For example, if you are confident the market will be range bound going forward, you can find out what strategies perform best in this type of market. This is done by backtesting over historical timeframes that were range bound and seeing which strategies are best. Backtesting also helps you see which strategy parameters are most robust across different time periods. For example, does a 10% stop-loss outperform a 5% stop-loss 9 historical time periods out of 10? Thus, backtesting can provide valuable trading insights even though it cannot guarantee the future.
Some interesting things you might discover:
*The combination of active trading and commisions can wipe you out even if you have a good percentage of winning trades!
*Really tight trailing stops can seriously hurt your long term profitability and do not reduce drawdown as much as you might expect
*Strategies you thought would be good that consistently underperform the market
Directions (Single Stock Backtesting):
Select the stock you want to backtest your technical strategy on.
Starting Capital: Amount of money you start with
Stoploss: Point at which you want to get out of a position moving against you. A regular stop means you will get out of your position if the stock falls a set percentage below where you bought it. Trailing stop: Let's say you buy a stock at $10 and put in a 10% trailing stop. If the stock falls 10% without ever going higher, you will sell at $9. But if the stock goes up to 15 then down 10% to 13.5, you will sell at 13.5 and lock in some of the gain.
Target: Sell when your stock attains a certain percentage gain (Can turn off by selecting Don't Use Target)
Start Date/End Date: Select the historical dates between which you want to test the strategy.
Signals: Signals involve the crossings or relations between price and technical indicators. For example, the golden cross, buy when the 50 day simple moving average (sma) crosses above the 200 day sma and sell when the 50 day crosses below the 200 day (death cross). The following links explain some popular technical indicators:
Get Trades/Graph: Get trades will literally show you the trades you would have made if you went back in time with a summary of performance included.
The statistical tests: Test to see if the average daily return of the strategy is the "same" as the average daily return of the S&P 500 or the "same" as the average daily return of buy and hold over the time period. We want to know how confident we can be to reject that the two returns are the same. The higher the confidence the more sure you can be that your strategy is actually better/worse than the S&P 500 or buy and hold. The graph plots the value of the portfolio over time with an included summary of the performance.
Directions (PortTester Beta):
This is for backtesting a strategy that you would apply to your portfolio as stocks reach your technical buy and sell signals. In the first textbox, enter the tickers for the basket of stocks you want to backtest your technical strategy on. Enter each ticker separated by a space. Stocks currently available include the 30 dow stocks, AA AXP BA BAC CAT CSCO CVX DD DIS GE HD HPQ IBM INTC JNJ JPM KFT KO MCD MMM MRK MSFT PFE PG T TRV UTX VZ WMT XOM. To include all 30 in the backtest, just type DJIA which is the default.
Target Number of Open Positions: This is the number of stocks you want to have a position in and no more. For example, lets say you want to target 2 open positions. When the backtester finds a buy signal in one of the stocks you put in the basket, say GE, it will assume GE was bought. It will now look for 1 more stock to buy when there is a buy signal, say BAC. You now have a portfolio of 2 open positions (GE and BAC) and the backtester will not buy any more until a sell signal sells one of the stocks. A diversified portfolio should probably have 10 or more stocks, but this takes a lot of computing power to backtest. Thus, a small portfolio like the default of 5 open positions will suffice to get a sense of a strategy's performance. Of note, for investors with a small amount of capital say $10,000, it is expensive to trade a large number of positions with $20 commissions for round trip trades. ETFs are a cheap way to get diversified.
Starting Capital: Amount of money you start with
Trading Commission: Amount you pay TDAmeritrade, SOGO, ScottTrade, etc to trade a stock
Position Sizing: This is how you decide to commit a certain amount of money to each stock in your portfolio. Currently only one option (Equal Cash Allocation) is available. This means if I have $10,000 and I want to enter 2 positions, I will put $5000 in each less commissions. In other words, cash available will be equally divided towards new positions until I reach my target n number of open positions. Other options to come will be equal number of shares, and volatility based position sizing rules.
Stoploss: Point at which you want to get out of a position moving against you. Let's say you buy a stock at $10 and put in a 10% trailing stop. If the stock falls 10% without ever going higher, you will sell at $9. But if the stock goes up to 15 then down 10% to 13.5, you will sell at 13.5 and lock in some of the gain.
Start Date/End Date: Select the historical dates between which you want to test the strategy. The backtester will start at the start date in historical data and will search through the stocks you selected until it fines a buy signal. If no buy signals are found on the first day, the backtester moves to the next day and searches through all the stocks in the basket until a buy signal is found in which the stock is assumed to be bought at the close price adjusted for splits and dividends. As soon as a stock is "bought", the backtester will be looking to sell that stock when a sell signal comes. It also continues to look to buy stocks until the target number of open positions is reached. At the same time, it will sell any existing positions if a sell signal occurs. The value of the portfolio is calculated everyday until the end date.
Signals: Signals involve the crossings or relations between price and technical indicators. For example, the golden cross, buy when the 50 day simple moving average (sma) crosses above the 200 day sma and sell when the 50 day crosses below the 200 day (death cross).
Get Trades/Graph: Get trades will literally show you the trades you would have made if you went back in time with a summary of performance included. The graph plots the value of the portfolio over time with an included summary of the performance.