stevo said:
Chops
I don't know of any decent free software for portfolio backtesting - don't waste your time. EOD Amibroker is $149 US, and as tech mentions is very good.
If you are serious about backtesting I would go for AmiBroker. I also use Amibroker combined with TradeSim. Tradesim is excellent. You can do Monte Carlo analysis with Amibroker and Excel as well even though it's a little slow. If you don't already know how to code in Amibroker then you will need to spend some time understanding the software and language by running through the tutorials etc
Best I have seen so far however still lacking in many areas which one day maybe overcome. IE If I switch a method off today and re enter exactly the same portfolio in 3 mths taking taxation in consideration---then how will it perform?--there are many more but this is just one example.
Some suggestions and ideas to get you started;
1. For starters select a universe of stocks to test on, but don't start with too few - at least 400 to 500 stocks. I use the All Ords stocks for basic testing. You should expand/ alter the universe if you think you have a good system.
We differ a little here. I feel its much easier to design a system on a SINGULAR stock or entity---IE and index or future.
However the system would be specifically designed around IT or the Universe you select.T/T is based upon the BT margin list and performs worse on the whole of the ASX,it performs best on the Hong Kong exchange!!?
2. Don't get bogged down in one time frame. Do some simple tests on daily, weekly and monthly time frames to see which one is easiest to work with. Stick to trading long strategies for starters - you will get confused if you try testing shorting strategies initially.
Strongly agree.
3. Test the sorts of things that are pushed in trading books all the time. Try out MACD, RSI, Stochastics, Bollinger Bands Donchian channels etc using the methods outlined in trading books. Try the different time frames and see what you think of the results.
This is the best place for Oscillators in my veiw,however I personally am not a great fan of them I prefer to use price action as much as possible.
4. Try OB /OS style indictators but also reverse the strategy - buy when overbought, sell when oversold. As an example take bollinger bands in a weekly timeframe using the traditional OB/ OS approach then reverse it. Add a trailing stop.
I have found that simply reversing a trading method from long to short when designed for long side trading to be less than successful. Stock tends to act very differently when falling,than climbing. My veiw is that short side should be handled ALONE. But as I dont trade short,Ive not looked deeply into this way of trading. The old 80/20 rule--- the market is 80% bullish so thats where I'll trade---a personal thing only.
5. Settle on a timeframe (daily / weekly / monthly) that you are most comfortable with for your first system.
While I trade systems in Daily timeframe Steves system of Weekly is more profitable and
easier in my veiw to design.I think weekly is the highest timeframe that I would use.
6. Take some of the ideas that you have obtained from testing the standard indicators and start experimenting with trailing stops. Try moving averages, donchian channels, ATR trailing stops and anything else you want to throw into the pot.
Ive not yet been able to code throwing a trailing stop in if a move of X is achieved over Y period IE a very quick positive rise of 50% over a few days to a week---thats the only time Id use a trailing stop because if you use it any sooner it becomes the EXIT!,
7. Stick with simple position sizing strategies for starters - 10% of equity or $10,000 per position on $100,000 capital. You can expand on these strategies later.
Agree however slight cahnges can make dramatic changes to result.
IE I have found 8 positions to be open at the one time in a portfolio to be the optimum---or 12.5% of capital. I have found stops over 10% to weaken the equity curve---IE it isnt as smooth. The optimum stop regardles of how its placed appears to be 8-12% from the purchase price.
So If you designed a mechanical stop which was consistantly inside or ourside these parameters than I would suggest it could be having a negative impact on result.
8. Ideally keep track of the results obtained in a simple spreadsheet or even hardcopy printouts - giving enough detail so you can repeat the tests in the future.
Great advise---Im slack I dont do it as well as I should.--time factor and obvious profit is my weak excuse!
9. Don't worry about walk-forward testing until you have something that you think has a chance.
I agree here but is covered above and in particular under the info on Montecarlo testing---without it I strongly believe you could well have a system that breaksdown 5% of the time and NOT know it no matter how often you walk forward test.
10. The same goes for optimisation. Just stick to the usual periods touted for indicators, or if you want to change them use something like known number sequences for convenience - 1, 3, 5, 8, 13, 21, 34, 55 etc. Use any sequence you like - they are not magical.
My veiw is that optimisation has its place with singular entities and perhaps very very small universes which are in someway correlated. To optimise un correlated universes will be a pointless exercise.To prove this to yourself run the optimisation 6 mths ago and now---they will be entirely DIFFERENT.
Not what you want.
11. Always delay your trades. For EOD trade the next day, not on the close of the current day, EOW trade in the next week not the close of the week, etc.
This is the BIGGEST mistake newbie systems testers make.Makes enourmious differences to results.often turning profitable systems into disasters.
This will probably take around 6 months maybe longer depending on your skills with Amibroker. I really don't have any comprehensive references on backtesting other than maybe the TradeSim manual. Leon Wilson's book - Breakthrough Trading could be useful. Obviously the online help for Amibroker is essential and there is a lot of stuff on the Amibroker Yahoo site.
Longer I think---but maybe Im slow on the up take after all Im only a Duck!
Ill post the name of my systems testing BIBLE when I get home,a grasp of Mathematics is a great help. You dont have to be a genius---Im a duck who builds things---cant be that hard!
Also - get decent data! Free data is useless for serious portfolio backtesting.
regards
Crapp data crapp results. Pay for good software and good data---oneday you expect to make a motzza---if your undercapitalised and cant afford the above---what are you doing trading????????