Backtesting lets you examine your stock trading strategy on historical data to determine how well it
would have worked in the past.
If you have developed a strategy with which you are ready to go live, the Backtesting feature will
help you to understand if your methods are viable and potentially successful.
How does backtesting work?
When you create a stock screening strategy
that contains all necessary criteria and the
selected historical year for comparison, backtesting applies this information
and simulates trades for every matched stock based on each day of the selected
year. Any matching stocks will be put into your virtual portfolio and any that
are not will be ignored. Even if some stocks, however, do match the criteria,
they will still be ignored if there are no vacant positions in the portfolio.
Traders typically do not add a large number of stocks to their portfolio,
because its purpose is to control risks (20-30 stocks generally suffice).
Portfolio size can be specified along with other parameters during strategy
Also, if some stocks in the virtual portfolio conform to exit
criteria, stop loss, or take profit condition, the corresponding position will
be closed. Users can specify the criteria for closing positions. In this case,
stocks that were purchased earlier are sold and will be reflected in simulated
trades. The position is then closed which allows for vacancies in the
portfolio. The trading simulator takes several seconds to perform the analysis.
Testing results and a list of executed virtual trades are displayed on the
backtesting report page.