Simple guide to backtesting

So I wanted to make a super basic guide to backtesting for those who may not be aware of it. Recently I've started doing it and it gives me a huge boost of confidence as a trader + great results. So what is backtesting? backtesting at it's most basic is seeing how a strategy or system works when applied in the past. The system can be anything you want it to be. Moving averages cross over... Whatever strategy you're using.

Steps:

Step 1 On the bottom center of the chart beneath the date click go to. Select a point in time of your choosing. The chart takes you there.
Step 2 select "long position" in the drop down of the toolbar.
Step 3 Set target and stop parameters.

Then just click forward and see if your target or stop was reached. Record this result in a spreadsheet. (I just used simple columns for losses and wins. subtract total loss from gains and you've got your net profit.) Anyway, hope that gives people an idea of how I do simple manual backtesting. It need not be more complicated than that. And cheaper than using actual money. ;-)

Comment:

Based on some questions let me update each of the steps. Remember that one back testing the goal is to see how your strategy worked on past data. For example if you have an oversold RSI strategy you want to see how this strategy performed historically.

To do this you are setting parameters, clicking through to see the result over a given time frame, and later recording your results in a spreadsheet.

So with that in mind here are the 3 steps.

Step 1 On the bottom center of the chart beneath the dates "click go to." Select a point in time of your choosing. Click the blue arrow. The chart takes you there. -This is pretty self explanatory.

Step 2 select "long position" in the drop down of the toolbar.
The toolbar is the set of tools on the left of the screen. (when in interactive chart layout.) Click and hold the seventh item from top to bottom. A sub menu comes up. Here you select long or short position.

Step 3 Set target and stop parameters. -Next you're going to use the tool you just selected. To do this you click anywhere on the data and a rectangle for your long or short position comes up. If you drag the top it will change that % difference for that target. Same with the other side.

Once you've done this drag the rectangle to the right of the screen and align the horizontal center with your data.

Now the goal is to see whether your target or your stop gets hit. To do this you either click forward using the navigation or simply drag the screen to the left. This moves you forward through the data and you visually check which was reached first. You then put this result in the spreadsheet.

That's it. I know it's several steps but it's really not that complicated. As always I'm happy to help in anyway that I can. Happy backtesting.