Get started

Test

How to Backtest a Trading StrategyBacktesting is a manual or systematic method of determining whether a trading strategy or trading setup has been profitable in the past. A trader should backtest a strategy to help determine if a trading strategy is likely a waste of time and money, or if it shows promise and profitability in a variety of markets. While you can get software that does systematic backtesting… we prefer manual backtesting as it can be carried out by any type of trader, It is a key component in developing an effective trading strategy. There are infinite possibilities for strategies, and any slight alteration will change the results. This is why backtesting is important, as it shows whether certain parameters will work better than others. What Do I Backtest?
The first thing to note is that you don’t need a full trading strategy in order to start backtesting. 

For example I personally am always looking at new trading setups and candlestick formation and then backtesting them to see how effective they are. 

You can test small parts of a trading strategy before putting them all together. 

And of course you can and SHOULD backtest your whole trading strategy in a number of different trading situations. 

How to Backtest

 1) You need data to use in testing… if you are testing short term strategies on small timeframes then use at least a few weeks of trading data.

If you are using higher timeframes then you should be using years of trading data.

 2. Define the strategy parameters. Entry conditions, exit conditions etc. Include as many “If X happens then I will do Y” scenarios as possible so that your strategy is repeatable. 

Its essential to include risk management in these parameters too. So decide on if you are risking a percentage of your account equally on each trade, what is that percentage. If you are managing your risk in another method, clearly define it as something you are able to measure. 

ALL OF THESE PARAMETERS ARE WHAT YOU ARE MEASURING AND TESTING. THESE ARE THE ELEMENTS THAT YOU CAN CHANGE TO SEE WHICH ARE MORE OR LESS PROFITABLE. 3. Use the TradingView rewind tool to go back in time and remove the predictive nature of knowing where the chart will be headed. 

You could go back in time and look for trades from a year, a month or a week in the past, depending on how far back you wish to look. 4. Analyse price charts for entry and exit signals. This can be done until all trades on the chart up to the current time have been located and marked or written down

(be aware that it can take some time and be prepared that you are unlikely to be able to do all of this backtesting in one session… it could take you a few sessions of backtesting and recording the trade outcomes to fully test a strategy.) 5. Once you have competed this process, then you can start to total all of the trade results up to see how profitable or unprofitable your trading strategy / setup has been over time. What Goes Wrong in Backtesting

Typically the pitfalls and the ways that people fail at backtesting are based around not being through enough. 

That could mean that people haven’t included enough data in the backtest. 

It could mean that they left too many unknowns in the strategy so when using it in a live trading situation the strategy isn’t usable or realistic.

Also it could be that people don’t back test for long enough to see if the strategy is profitable or not. If you only have a small sample size of trade then even a short losing or winning streak of trades would dramatically affect the results. You need enough trades to show winning streaks, losing streaks and all between so that you can be confident that your strategy will be able to withstand those situations in live trading. 

Imagine for example in your backtesting your strategy didn’t lose more than 2 trades in a row but when you start using it in live trading you get 5 losses in a row. This is a situation that hasn’t been tested so could show a different result. 

The goal is to backtest for long enough and through enough so that nothing in live trading hasn’t been tested previously. While it may not be possible to fully achieve this… it should be the goal and you should feel confident enough that you have done everything possible to ensure this is the case.
Editors' picks
Education
by JoelWarby
56
ADAUSD Price Comes to DecisionImportant things to note: We have not gotten our 50MA test yet. Price coming to another decision. Long wicks tells us price will move up temporarily. A break from temporary trendline will signal fall to lower price level. 1.91 price level will be hit hit price falls, 1.71 might be hit. Chinese Govt hates BTC (we already knew that) Important Dates to Take Note of: ADA Summit Sep 25-26 2021 (likely to produce more important dates) So we have not gotten our 50MA test yet and price looks like it is coming to another decision. Anything can happen so I am not going to say we will not get our test at all. We can see long wicks which tells us the price is likely to move upward if only temporarily. We also have a temporary trendline and a break from this level will signal a move to the downside which is the 1.91 level. The next stop after the 1.91 level would be the 1.71 level. I do not see the price moving below this right now but we will see. On another note, the Cardano Summit is tomorrow, which I am attending. Hopefully I can grab some limited edition NFTs and I'm sure there will be a lot of news coming out that may be beneficial for ADAs price. I am not going to guess what impact this will have because we don't know. However, I am going to let you all know what happens at the summit so you can know what's going on. In other news, the Chinese government threatens to ban BTC for the 1000000th time. Honestly, it doesn't matter long term in my opinion, people will find a way around all of this like they always do and it is likely to create alternative mining and markets all over the place. Anyways, that's my two cents. I will continue to watch ADA and let you all know what I think. Thanks again. I am going to make a video soon teaching everyone my approach to charting. I will cover the entire workflow process I go through. I hope you enjoy it. Tell me what you think? This is not financial advice. DYODD.
KRAKEN:ADAUSD
by mysticalwalrus
18
ADAUSD Explaining The Moving AverageImportant things to note: There is an important 50MA test about to happen. A moving average is usually the average closing price of an asset in a certain amount of time. Prices use moving Averages to perform tests of a price level. Usually before a break across a moving average line, the price will test MA at a prior time hinting that it will try to cross. This is why I want to see a test of the 50MA. Tests of a MA can produce a bounce, or if a cross occurs, it can shift sentiment either bullish or bearish. Take a look at the examples I have shown of the price testing the MA, then crossing. This is a good way to back up your price targets. Important Dates to Take Note of: ADA Summit Sep 25-26 2021 (likely to produce more important dates) Since I am waiting to see what happens with this test (if it happens at all). I wanted to explain why I find it so important. Lets just start off with 1 moving average, the 50MA on the 1D chart. This takes the average closing price of ADA over 50 days. Tests of the MA can produce a bounce, tell you where the price wants to go, and can shift the sentiment if a cross of the MA occurs. It is a great way to add a little more information to your prediction on where a price is headed. Take a look at some of the examples I have made for you showing the price testing, As you can see, the price test, then crosses. Not all tests are successful, so keep that in mind. Whenever a price is below a moving average, you want it to push above the moving average so the sentiment will shift. There are different kinds of moving averages, and different ways to interpret them (you have probably heard of a golden cross or a death cross etc.). But lets keep it simple right now. I would like to see the 50MA tested with a wick that crosses the MA, letting me know it wants to cross. The only thing better than that will be a cross itself. This is just the first step for ADA however. It will still need to get above the 20MA to solidify its bullish sentiment and stop the asset from getting pushed around by the bears. Now, lets talk about the elephant in the room, which is overhead supply. You might know it as a big dome sitting at the top of BTC, ETH, ADA and many other assets right now. Though, that is a bearish sign, the on chain metrics I am seeing for BTC do not suggest a bearish scenario. What I see is long term holders buying, and moving their coins to cold storage. This is a bullish sign. They would not want to store their BTC if the price was going to go into a bear cycle, and the same goes for buying right now. They would not buy right now if we are headed in a bear cycle, they would wait. The reason I bring up a bear cycle is because the price goes too far down, it will suggest a bear cycle and nothing I see on chain suggests that. So, I hope that clears everything up for you! I will put out another chart when I see the results of the 50MA test. Thanks again everyone!!! Also, it is worth mentioning that TradingView has reached out to me and offered me very kind words, and showed me some support. I thought that was very nice of them and it was very unexpected. Though, I never planned for any of this to happen at all. I was constantly making charts for myself and my friends and some of them suggested I post them publicly. I never imagined any of this would happen, if I did, I would have waited until I had a bit more free time LOL. However, it makes me really happy to know that people are learning from my charts and hopefully it will encourage you all to learn technical analysis for yourselves! In a couple weeks I will have more time to make the educational content you have been asking for, and I will likely chart a wide spectrum of assets. Thank you again for all of the support, it means more to me than you know! Now for some good news. As a person who follows ADA closely, I know that the adoption of the platform will happen very quickly with the release of smart contracts on the 12th of September. In fact, I think it was built with such a great foundation, I might just do an entire post on the fundamentals of Cardano sometime in the future. Pretty soon, we will see NFTs being created, DeFi, applications being developed, and overall strong adoption of the ADA blockchain platform as a whole. If there will be any immediate reason for ADA to move higher, it will likely be news coming from the summit on the 25-26 of September. So I would keep an eye on their twitter accounts around that time. Again, I apologize for having less time to post at the moment, but that will change in a couple weeks. I am going to make a video soon teaching everyone my approach to charting. I will cover the entire workflow process I go through. I hope you enjoy it. Tell me what you think? This is not financial advice. DYODD.
KRAKEN:ADAUSD
by mysticalwalrus
13
CEMI Chembio Diagnostics Earnings August 5thTomorrow Chembio Diagnostics CEMI will Report Second Quarter 2021 Financial Results. Things to consider: $28.3 million purchase order from Bio-Manguinhos for SARS-CoV-2 Antigen tests in Brazil $4 million purchase order from the Partnership for Supply Chain Management (PFSCM), for the purchase of HIV 1/2 STAT-PAK Assay for shipment to Ethiopia those are just some big orders from July, Q3, for which we could se a business update tomorrow at the earnings call. Craig Hallum has a $10.00 price target for it.
CLong
by TopgOptions
2
Some insightsCryptos are in one of their best moments, as they are getting the attention of the whole world, and that means that markets get volatile, if we get to manage that risk efficiently, we could achieve our financial goals. This analysis is self-explanatory, even though, we can cleary see that this downward trend started with a pattern of change, Shoulder-Head-Shoulder, from there, we lived a 15+ days of continuous bearish days, until we hit the last resistance ( with prices greatly down the 200SMA) we could see a not that cleary wyckoff accumulation pattern. This pattern confirmed itself with a few test and springs, but the great confirmation was the breaking of the triangle(support and resistance) of the last month. During this time, prices started recovering, and creating new resistances that are worth maintaining during the next few trends. I hope this helps you get a different view of the current situation. Hope you have a great day!!
BITSTAMP:ETHUSDLong
by Fernando_132