Backtesting Tutorial
Many successful traders backtest their strategies before they use them. A good backtest result is no guarantee of a successful trading strategy, but backtesting helps to understand what is necessary for successful trading and what mistakes you can avoid.
To understand how backtestig works, let´s create a very simple script.
The backtester uses the array variables buy and sell. The assigned expression to buy and sell is executed for each bar in a stock and returns an array with true / false values.
This script buys when close is below 10 and sell when the price rises above 15.
BUY = CLOSE < 10;
SELL = CLOSE > 15;
The following table contains 'close' data of a stock. Once the script is executed on the stock, the variable "buy" and "sell" are initialized with the data in the table. The stock will be purchased on bar 3 for $9 and sells for $16 on bar 7.
|
Bar |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
|---|---|---|---|---|---|---|---|---|---|---|
|
Close |
12 |
10.5 |
9 |
9.5 |
12 |
14 |
16 |
18 |
15 |
16 |
|
Buy |
False |
False |
True |
True |
False |
False |
False |
False |
False |
False |
|
Sell |
False |
False |
False |
False |
False |
False |
True |
True |
False |
True |
