If our trades are based on some formula that can be defined, then it is possible to define strict rules for entries and exits. These rules could be put into some software — automatic day trading simulator. This type of simulator must have enough data about price movements in the past. If we want to backtest daytrading strategy then the simulator must also have historical intraday data in its database. Then we define the period for testing purposes, first and last day, and run the test.

The day trading simulator goes through the defined period, applies our rules to price and simulates trades. Results are recorded and published after the simulation finishes. Different software packages have different types of simulation integrated. There is a very good backtesting function in Amibroker, the analysis software. Another good option is Esignal with its Strategy Analyzer.

The eSignal Strategy Analyzer has six tabbed sections and more than values useful for strategy performance analysis. Multiple modes of graph presentation and the ability to create personal settings for displaying the values of the report and analyzing the strategy make it ideal for customizing the strategy to meet your individual needs.

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Visually enhanced graphs and added functionality make back testing and strategy adjustments easy to accomplish. Another option for testing any daytrading rules is to do virtual trades. Such virtual trade is done manually by personal monitoring of price and decision that all rules are fulfilled and trade can be executed entry or exit.

With this feature, you can step through your trading day bar-by-bar to assess your strategies and adjust accordingly. This feature is available in AmiBroker and also in Esignal.

Capturing Time (to Test Your Investment Ideas)

The Esignal feature has a fast forward and reverse capability, as well as the ability to step through the data a bar at a time, using your choice of playback intervals. Data about any virtual trade could be recorded manually by writing into Excel or similar spreadsheet software. It is also possible to open some paper trading account for day trading simulation. Then all trades are done in this day trading simulator and every virtual trade is recorded automatically. When the testing period finishes we have to download recorded data about virtual stock trades into some good journal software where this data can be analyzed.

It is also possible to test any stock day trading strategy using real time data. To use current day and coming days and make virtual trades in a daytrading simulator when needed by using your daytrading rules. Again we have to record data manually or automatically with trading journal software and make an evaluation. This real time strategy testing is also important to do after previous backtesting as the next step before live trading with real money. Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website.

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Growth Investing. Income Investing. Help Topics. 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.

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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 stocks generally suffice. Portfolio size can be specified along with other parameters during strategy creation. 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.