Backtesting Trading Strategies – How Stock Traders Use Them

Backtesting trading strategies are used by professional stock traders all the time. Understanding what they are and why the pros use them is important if you are serious about trading stocks. In this article I will explain what backtesting is and point you in the right direction towards finding the right resources that can help you get started in backtesting.

What are backtesting trading strategies?

Backtesting Trading Strategies also known more simply as backtesting is the action of implementing a trading strategy using historical statistics to see how precise the strategy would have forecasted real outcomes.

Why do traders use backtesting?

The thought process behind backtesting is that it makes sense to see how your trading strategy would have done in the past with pretend money before you attempt to risk real money in the future.

How do traders implement backtesting?

There are 2 major ways that traders implement backtesting.

Method 1: Traders create their own software to test their trading strategies using past data. If you are a super genius software developer and trader all in one than this is surely the way to go. However, if you are not comfortable doing this yourself you can use the next method.

Are you a Genius like this guy?

Method 2: Traders use software that is already out there.

Is backtesting software expensive?

Backtesting software can cost roughly between $0 and $10,000. It depends on how serious you want to get into it. Some traders like to save money and go with the lesser expensive packages and others believe that you get what you pay for and spend top dollar thinking it will make them money down the road.

Where can I go to find the software?

Here is a basic list that starts with the less expensive options and ends with the premiere packages that have significantly larger startup costs. (The Trade Locker does not endorse any specific software – this is here so you can research what is right for you!) Also, prices change so use this only as a reference not a quote!

http://www.metatrader4.com/en – Free

https://www.quantconnect.com/ – Free

http://www.backtest.org/ – Free

http://gbeced.github.io/pyalgotrade/ – Free

https://www.r-project.org/ – Free

https://www.quantopian.com/ – Free

http://www.analyzerxl.com/ – $74.95 for Pro

http://www.amibroker.com/ – $279 for Standard – $339 for Pro

http://www.rightedgesystems.com/ – perpetual – $499 or $50 per month

http://www.quantshare.com/ – $245 for Advanced – $595 for Premium Version

http://ninjatrader.com/ – $995 lifetime license or $50 a month

http://www.tradingblox.com/ – Turtle $990 – Professional $1,990 – Pro Plus $2,990 – Builder $3,990

http://www.multicharts.com/multicharts/purchase/ – Lifetime $1497 – Pro $9900 (They also offer $99/month $797/Year

The following are monthly so the cost really depends on how long you use it:

http://www.esignal.com/ – $45-295/month

http://quantpicker.com/ – $50/month – $480/year

http://www.seertrading.com/ -$100/month

http://www.portfolio123.com/ – $139-$199/month

http://www.tradestation.com/ – $249-$299/month

This one is offered yearly:

http://www.bloodhoundsystem.com/ – $995 / year – $1,995 / year

If you know of any others not listed please post them below with the price. The Trade Locker is a free online community whose goal is to help our members become better traders.