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Back Testing

Discussion in 'General Discussion' started by Don S, May 21, 2016.

  1. Don S

    Don S Member

    New member here:
    Back testing has been mentioned as an important tool in one's option education. Does anyone have any articles, books, websites, etc. in learning how to back test or the best methodology(ies)to apply to a given strategy? Where does one learn how to back test? What am I looking for/at when back testing? If the underlying goes in a particular direction how that move effects the Greeks, price, & IV? I have TOS, do I need to buy OV or ONE? Do they have classes on how to backtest with their product?
    Thanks in advance for your suggestions.
     
  2. tom

    tom Administrator Staff Member

    Hi Don!

    Welcome! The first question is are you using OptionVue or OptionNET Explorer? Both of these programs have good backtesting features built in.
     
  3. Don S

    Don S Member

    At this moment I have neither, Tom. What exactly does back testing consist of? Am I looking at a historical event (20/20 hindsight) and its effect on what? And how does one use the what if scenarios to gain knowledge? What are the barometers (metrics?) and what's their priority? What does each tell me? Are there levels of importance?
     
  4. tom

    tom Administrator Staff Member

    Hi Don,
    Backtesting with OptionVue or OptionNET Explorer is a manual process. The software can load price data for a date and time in the past. You can enter, adjust and exit trades as if you were on that day in the past. The software can step through time and load historical data so you can see how your trades evolved over time and what profit or loss they would have had.
    Many traders like to test trading ideas with this type of backtesting. It is very instructive to see how your strategy would have done during extreme market conditions. With backtesting, you can gain confidence that your trading strategy is sound and can handle various market conditions before you start trading it in a live broker account.

    Ken Dole, at OptionVue Systems International, had a nice walk through of the OptionVue backtesting feature in this video:



    You can get a 30-day trial of OptionVue at http://optionvue.com/capital
     

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