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Manual backtesting

Discussion in 'Options' started by runmael, May 4, 2016.

  1. runmael

    runmael Member

    Hey guys, I am hoping that some of the members might be able to help me with a bit of a research I am doing.

    I am working on a tool for manual backtesting that enables you to observe your trade in the past. What I would like to know is what are the biggest problems and obstacles that you face regarding manual backtesting right now?
    TraderBoy likes this.
  2. Challenger

    Challenger Member

    The biggest problem I have is not enough hours in a day. Manual back testing is time consuming but in my opinion is the only way to learn a strategy, see how it performs in various market conditions and develop faith in your trading rules.

    I use OptionVue and I am very satisfied with back trader. I have used it extensively to back trade John Locke's M3.

    Thinkorswim also has an "On Demand" feature that allows you to go back a few years on selected tickers and place trades on the platform and see how they perform. However I don't believe you can see your trade on the analyze tab while using on demand so it is useless for me. It is also very slow.

    You mention in your post that you are working on a tool for manual back testing. Can you elaborate on that? My thoughts are that one of the challenges with this would be to have a good reliable source for historical data.
    runmael likes this.
  3. status1

    status1 Well-Known Member

    The On Demand does have the analyze tab and used to work a few years ago before they messed it up with all the changes
    Now you only see the expiration line which is kind of useless if you don't have your t+0 line since they have no greeks and even back then it was slow but at least you had something to look at

    Yes the key is to get accurate historical data preferably for free but that's not going to happen since I am sure it's a lot of work to gather all those data points and store on a huge server
    runmael likes this.
  4. runmael

    runmael Member

    Thank you for the response.

    Historical data is something we already took care of, and I agree that having accurate data is the cornerstone when developing such a tool. Currently, we do not have intraday data (just end of the day data), so would you consider that to be a limitation to a manual backtesting tool?

    @Challenger could you walk me through your process of using back trader in OptionVue? (I have seen this video, and since I didn't use OV I am wondering if that is the common usage). I am happy to share any information you might be interested!

    Thanks once again!
  5. status1

    status1 Well-Known Member

    Personally I could use end of day data since I don't have access to trading during the day and it's better than having nothing with On demand at TOS
    I am sure other would prefer something similar to what was shown in that video

    When you say you have end of day data
    Is that for all the strikes and expirations or just the current month or near the money ?
    How far does it go back ?
  6. Challenger

    Challenger Member

    it's a bit hard to define my back trade process in OV without giving a complete software overview... In a nutshell, I create an account, set back trader to a point in time where I would enter a position (say 56 days to expiration), then enter the strikes that will make my position. In the case of an M3, that would be a butterfly and a long call. I then look at the analyze graph and fine tune my position to get the desired T+0 line and Greeks.

    I then convert the trade and move the clock 1 day (I typically assess my position and the adjustments at 3:30 pm). At that point, going through my trading rules, I assess if an adjustment is needed. It is essentially applying my trading rules as if I was assessing a live position at the end of the day. I just keep moving the clock forward 1 day at the time until my rules tell me to close the position. I don't have to worry about data (all historical data included in OV), just focus on applying the rules the same way I do in real life.

    I also use back trader after I close a position. I can go back in time and see how the trade would perform if I would have done different adjustments at different times. Back trader is an essential part of my trade debrief process.

    Hope this helps!
    TheSpeculator152 likes this.

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