The fundamental question you need to answer when backtesting was the topic from last time: when to take the signal and when to skip it.
Today, we’ll discuss which backtesting software has the critical feature required to answer that question.
A Basic Backtest is Trivial to Create
Why are there so many backtesting software packages on the market? From a programming perspective, the basics of a backtester are pretty simple. (My daughter created a basic backtester in an afternoon.)
But to create one that lets you answer the fundamental question of “when to take the signal and when to skip it” is much harder.
It requires the ability to do two things:
- Create a trades list from the backtest
- Add custom columns to the trades list
I’m always amazed how many backtesters can’t even do the first one!
It’s because the vast majority of these backtesting tools are created by programmers and not actual traders, much less traders who’ve created a profitable trading strategy.
Backtesting Software That Works
So, which backtesting software has the fundamental features that can actually get you to the starting line?
There are three available to retail traders:
Those are the ones I know of that allow you to backtest across the entire market (not just a small basket of stocks), produce a trade list in a CSV file, and allow you to add custom columns.
(I’m not including Python, but technically you can build your own backtester using it.)
If I’m missing any, let me know and I’ll add them to the list in a future message.
Which One Should You Use?
That depends on the kind of trading you do, your experience, and your programming skills.
I’ll go over that tomorrow.
-Dave
