How to Start Backtesting Trading Systems?
Backtesting a trading algorithm is technically pretty difficult if you have never done that before. The good news is that it is pretty easy after you had some practice. It becomes almost as if you were to write an e-mail to your friend after about the 100th strategy that you coded. That does sound weird in the beginning buy believe me, you will code thousands of them as soon as youget the basics done. The thing is, you change one rule – that us a new system already!
Algorithmic Trading and Back Testing Platform
So let’s go over what’s really in it for a trader. First of all I would like to state that I’m a professional trader, I do it for living and I’m not promoting any kind of software for anybody. I have been using it myself for my own trading, research and backtesting and I think it is absolutely awesome with no doubt.
Anyone can wake me up in the middle of the night and ask me what is the best software for market technical analysis, algorithmic trading and backtesting trading systems and I would say it is Wealth Lab!
How does it work?
You have to be able to program your strategies in C# in order to get the full potential out of this software. The program does offer non code ways to pass your ideas to the computer but it is really nothing comparing to the whole specter of opportunities you get if you know how to code with C#.
The good news is that you don’t have to be a real programmer. The level required for the software to run and test average level strategies is quite simple and you can get over it even if you have never coded before.
What can you do with Wealth Lab
Once you have written your code and put it into the system you have numerous options. Actually there are so many things you can do with back test and research, that I decided to bullet point them. Here we go:
• An enormous collection of strategy statistics, wins, losses, average wins, average losses, constant wins and losses, wins or losses money wise, draw downs, various ratios, net profit and so on.
• You can actually invent any user statistics and count whatever you want, graph it, output it, input other data, print it and use any info you get on the fly from backtest and live info coming into the system for calculating your own custom ratios and success monitoring.
• Apart from the regular equity curve there are tons of existing graph represantations and even more that you can invent. From what is already in the box there are drawdowns, number of bars since last equity high, profit distribution from trades, profit distribution in period (month, year, day, week) and even more that can be downloaded from the community.
• Now this is simply the best! Just to mention for those who are in the beginning of their trading life what it is I will give an example. For instance you are trading a stock and you go in long when two SMAs cross with period 20. But how do you know it is the best period to work with? Optimization allows you to back test every single period on a data range and choose the one with the best results. Now I have to say that you can optimize any parameter based on any value you
For example you can invent your own mathematical algorithm of system efficiency, let’s say it must show good net profit, have at least 30 trades a month and don’t give us drawdowns of more than 1000$, no problem! You can put that set of rules into the optimization scorecard mechanism of Wealth Lab and it will find the best system parameters that suit this kind of query.
• Any timeframe, any symbol, stocks, futures, Forex anything and most of it for free except for intraday stocks with big data ranges.
• Comissions – no problem, there are a few types already built in, like per share and per trade but you can always write your own and it is not that difficult. You can even make a Forex one for spreads where you can input a specific value for a specific pair of currencies.
• Slipage – it is quite of an unpredictable phenomenon but in Wealth Lab you can set a certain percentage to slip for market orders just to imitate this kind of behavior and its possible impact on your trading.
• Money management. Absolutely awesome portfolio simulation, out of the box you can trade percent of equity, shares, set capital, max percent risk and you
can write your own money management modules that can be really powerful.
• Now this one is a real monster! When I found that this works I was more than amazed. Let’s say you want to automate and trade a few strategies at one time. Sure! You can combine them, allocate different money management systems for each and see results of such trades just like you do for single systems with all the possible visualizations and statistics.
• Wicked extensions. Some really interesting extensions such as Neuro Lab is also available where you can test some of your ideas through Neuro maths and even turn that into indicators.
• Live trading. Yes, you can automate trading through Wealth Lab using Fidelity brokers and some other .Net framework technologies.
• Alerts and screener. If you want to use it for alerts no problem, Wealth Lab can screen all the stocks for you and give out alerts. Just press one button and you got it on any scale, intraday as well.
Overall the amount of freedom and creativity that you can get with Wealth Lab is amazing. You can test your ideas, you can test ideas of famous and well known traders, you can do absolutely almost anything and you will be quite positively surprised with the results you can get from this kind of market behavior analysis and awareness.
I have personally had a hard time learning experience from scratch and turned it into a structured step by step all in one guide on possible Wealth Lab solutions to help others overcome this procedure in a faster way in order to realize a 100% increase in trading efficiency from unbiased trading strategy analysis with Wealth Lab functionality.
I beleive my experience can be of true help for the future of algorithmic trading and everyone who believes that it is a true instrument that combines creativity, financial potential, technical skills and pure fun!