How To Backtest Your Strategy Manually


How To Backtest Your Strategy Manually There are numerous applications and trading platforms available now that allow you to backtest your strategy. However, you may not always have these tools available, or you may want to see the complexities of your strategy in action. The good thing is that you can independently backtest your strategy. All you need is your trading strategy and historical data to accomplish this. Even if you do it manually, backtesting a plan is not difficult. However, employing a programme or a platform makes things much easier. What exactly is backtesting? Backtesting is the foundation of developing trading techniques and edges. During a backtest, a new approach is tested against historical data to determine its effectiveness. This has a lot of advantages, such as being able to watch the plan in action and evaluating whether or not any of the parameters need to be changed in order for it to function. If a trader's backtesting provides positive outcomes, he or she may have faith in the approach. If a backtest does not produce acceptable results, adjustments will most likely be required. You might also find out that the strategy you devised isn't worth pursuing. While backtesting is a terrific idea, it must be done with extreme caution. As we'll see later, it's entirely feasible that a method that performed admirably in the backtest may fail miserably on real-time data. There are, however, solutions to this difficulty. How to Backtest Your Strategy Manually Backtesting is typically performed by those who are familiar with coding. Those who are unable to code must rely on a backtesting platform. If you decide to manually test your approach, you can simply choose any chart that provides access to the indicators required for your plan. TradingView and MT4/MT5 now offer the finest free options. Let's look at how to manually backtest your plan now. Or, you can use your trading platform's in-build charts as well. For example, Zebu comes with an impeccable trading platform that you can use to manually backtest your strategy. You can view charts in multiple time frames and use a host of indicators and screeners to backtest your strategy. 1. Develop the Strategy Before you can backtest a strategy, you need to develop one in the first place. It is critical that you do not test half-heartedly since this would be a waste of your time. Create a trading plan based on your understanding of the market. When you're done, take a good, long look at it and try to examine each individual parameter. If something does not appear to be correct, make the necessary changes before proceeding to backtest. Your entry/exit signals, conditions, timeframe, and risk per trade are all important considerations. After you've finished developing your plan, you may begin backtesting it. 2. Choose your charts Choose the market in which you want to backtest your data. Once you've found the market, open the chart you're using and choose a timeframe from the past. Traders typically backtest their method for at least a few years. While some traders believe that scrolling back to the beginning of the chart is necessary, this is not the case. You should be alright as long as you can backtest your technique over a prolonged period of time. A sample size of around ten years gives enough history to build a reasonable sample size. Then, using the tools on your chart, pull up all of the indicators you'll need for your trades. Ascertain that your chart is properly configured with all of the trading tools that will be required during the backtest. You are now ready to begin your backtest. When you choose a share broker for backtesting and trading, ensure that you choose the best online trading platform like Zebu. Our charts, along with the wide range of indicators we have can help you formulate the most complex as well as easy trading strategies and backtest them manually. In addition to this, we also support your trading with the lowest brokerage for intraday trading. 3. Perform Manual Backtesting on Your Strategy You might have already figured out what to do next! Backtest your method by moving the chart ahead bar by bar. This entails recording trades anytime your trading method suggests it. Recording your trades is actually pretty simple, and it can be done using either a physical journal or software like Microsoft Excel. It is not difficult to keep track of your trades, but it can be time-consuming. When a trade signal is generated, all you need to do is record the entry point, stop-loss, date and time, and any other information that may be relevant to the trade. Many traders like to mention other nuggets that their trading method is informing them, such as the risk to reward ratio, and so on. When you're ready to exit the trade, make a note of your return as well as the exit point. After that, you simply repeat the procedure. Backtesting, as you may have guessed, can be tedious and time-consuming. Remember that backtesting a decade of data will most likely take at least a few hours. As a result, when you sit down to backtest a technique, make sure you have the time. The Drawbacks of Manual Backtesting The issue with manual backtesting is that you can make mistakes when tracking the data. In addition, when backtesting your technique, there is a psychological component involved. Because you can see the data ahead of you, you may not wind up executing the trades that your method suggests. People usually try to excuse this by saying, "I wouldn't have made that trade in real life." Simply do not do this! If a trade fulfills your criteria, make a note of it! If you are able to authentically and honestly note down your trades while backtesting manually, then you do not have to sprint for expensive programs and data plans to backtest. Your journal or excel sheet would suffice. As we have mentioned before, when you choose to start with manual backtesting, you need an online trading platform that accommodates every complexity of your trading system. As a leading share broker, we at Zeu have created an online trading platform that comes with a host of indicators to help you formulate and backtest a strategy. In addition to this, we also support your trading efforts by giving the lowest brokerage for intraday trading.