{"id":45326,"date":"2023-08-30T13:32:57","date_gmt":"2023-08-30T11:32:57","guid":{"rendered":"https:\/\/staging.captrader.com\/glossar\/backtest\/"},"modified":"2023-08-30T13:32:57","modified_gmt":"2023-08-30T11:32:57","slug":"backtest","status":"publish","type":"glossar","link":"https:\/\/www.captrader.com\/en\/glossar\/backtest\/","title":{"rendered":"Backtest"},"content":{"rendered":"<p class=\"wp-block-paragraph\">Investors face many uncertainties when trading on the stock market and can never predict how certain values will develop. Wouldn't it be useful to be able to test your own portfolio strategy beforehand? In this article, you will find out what a backtest is and how you too can carry one out.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What is backtesting?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The development of prices on the stock market for different asset classes cannot be predicted. However, it is possible, on the basis of past data <strong>Realistic assessments<\/strong> to carry out. Backtesting offers one way of doing this.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Different historical data is used to replicate the behavior of a strategy when trading. It is generally assumed that trading strategies that have been successful in the past will offer similar opportunities in the future. A backtest is used to generate data that can be used to <strong>Optimization <\/strong>contribute to our own strategy.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Whereas in the past, handmade protocols were used to collect information about trading, today the process works electronically. There are numerous backtest programs that help you to develop your own trading strategy and continuously improve it.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It is important to carry out a baking test in order to <strong>Assessment <\/strong>of your own strategy. Both beginners and experienced investors can benefit. Although there is no guarantee that the price trend will be similar to the past, there are many recurring patterns. You can use such programs to <strong>Risk <\/strong>to have a better overview of your own strategy.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Backtest implementation: advantages and disadvantages<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Below we offer you an overview of possible risks and opportunities when using a backtest for your own trading strategy.&nbsp;<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Opportunities through backtesting<\/strong><\/td><td><strong>Disadvantages of backtesting<\/strong><\/td><\/tr><tr><td>Gaining additional information can help you to develop your own strategy and better recognize your own priorities.&nbsp;<\/td><td>Data records based on past information and prices may be distorted by atypical market events.&nbsp;<\/td><\/tr><tr><td>A backtest allows you to try out some strategies without taking risks.&nbsp;<\/td><td>There is no guarantee that future developments on the market will be similar to past developments.&nbsp;<\/td><\/tr><tr><td>Baking tests today are quick and easy and do not require much effort.&nbsp;<\/td><td>If data sets are used that are not particularly comprehensive, some market conditions may not be taken into account and inaccurate results may be delivered.&nbsp;<\/td><\/tr><tr><td>Collected information and data help to optimize your own trading strategy.&nbsp;<\/td><td>It is possible that a model is built on the basis of the past without taking sufficient account of current market conditions.&nbsp;<\/td><\/tr><tr><td>Backtesting offers investors the chance to learn a lot. Investors can gain more experience about how trading opportunities are recognized. Recurring patterns are analyzed and observed.&nbsp;<\/td><td>Some strategies work well in a rising market, others in a falling market. This should be taken into account when creating a model.&nbsp;<\/td><\/tr><tr><td><\/td><td>If a strategy works well for the stock market, the same strategy may not work well for other asset classes.&nbsp;<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\">How does backtesting work?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">In order to carry out a backtest successfully, the corresponding software requires sufficient data from the past. This includes <strong>Statistics <\/strong>of economic events. Various providers provide closing prices, highs and lows of the day, for example.\u00a0<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">With CapTrader you can use the <strong>Portfolio Builder<\/strong> in your <a href=\"https:\/\/www.captrader.com\/en\/platforms\/trader-workstation-tws\/\">Trader Workstation TWS<\/a> free of charge. Create custom, research-based investment strategies for backtesting using filters and ranking criteria from 11 buy-side providers. You can then invest in your strategies with customized orders created by the system but based on your chosen order type and rounding method. As an alternative to TWS, CapTrader also allows you to use the <a href=\"https:\/\/www.captrader.com\/en\/platforms\/tradingview\/\">TradingView<\/a> platform for your backtesting.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The more comprehensive and precise the data for a backtest, the more reliable your results will be. It is advisable to carefully <strong>Comparison<\/strong>as there are providers with small, inaccurate data sets. You also have the option of specifying your own strategy in detail so that it can be checked.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Before you carry out a backtest, it is important to define your own trading strategy as well as possible. To do this, you need concrete figures so that the software can work with the data. You then select a program. You can choose between a <strong>manual <\/strong>backtesting, which requires some time and effort, or a <strong>automated <\/strong>Select the function of some programs.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Which <strong>Parameters <\/strong>The choice of which instruments are suitable for entering your strategy depends on your preferred asset class. In any case, the selected time period, short or long positions or, for example, selected currency pairs are important. Your indicators should match the strategy you have set up in advance and represent it as well as possible.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The more trades you check, the more accurate and meaningful the results of your backtest will be. If you invest more time, you can therefore rely more on the opportunities and risks indicated.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Depending on the software used, you will receive different <strong>Indicators <\/strong>as the result of your baking test:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Total profit\/loss ratio: This refers to the ratio of profit to loss trades<\/li>\n\n\n\n<li>Volatility: Typical fluctuations to which investments are subject on the market<\/li>\n\n\n\n<li>Probability of winning<\/li>\n\n\n\n<li>ROE or total return on equity: return on invested capital, expressed as a percentage<\/li>\n\n\n\n<li>Drawdown: The decline of an asset from a high to a low within a certain period of time<\/li>\n\n\n\n<li>Total profit and loss: The total profit or loss, shown as a percentage<\/li>\n\n\n\n<li>Break-even or breakeven point<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">If you are not satisfied with your results, you can <strong>Corrections <\/strong>and then test the strategy again. Based on the information provided, you can assess whether your strategy provides you with sufficient opportunities.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">If you are satisfied with your strategy and the results, you can create a <a href=\"https:\/\/www.captrader.com\/en\/open-demo-account\/\">Demo account<\/a><strong> <\/strong>into consideration. CapTrader offers you the opportunity to create a free and risk-free demo account and start trading safely. We offer numerous asset classes that you can try out until you feel confident enough to start investing.\u00a0<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It is important to manage your trades <strong>document<\/strong>. A detailed Excel spreadsheet or trading journal can help you to keep track and learn from your own trades. Enter all changes and effects, profits and losses that you record over time.\u00a0<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Conclusion: More successful trading through backtesting<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Backtesting is used to make assessments about your own trading strategy. Software compares your current strategy with data sets from the past to give you <strong>Risks <\/strong>and <strong>Opportunities <\/strong>to be displayed.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">A backtest can help you to acquire knowledge and improve your own <strong>Strategies <\/strong>to <strong>optimize<\/strong>. Testing works without risks and is now easier to understand thanks to programs with automated functions. You receive some information such as the total profit or loss, volatility or the probability of winning.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Pay attention to <strong>Extensive data sets<\/strong>. The better your data sets, the more accurate and meaningful the results. Not every strategy is suitable for every asset class. Furthermore, there is no guarantee that today's market will behave like the past market. Consider current market conditions to get better data.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It is important to define your strategy well before carrying out a backtest. This is the only way to ensure that the software used has sufficient data available to make realistic assessments.&nbsp;<\/p>","protected":false},"author":20,"featured_media":0,"template":"","class_list":["post-45326","glossar","type-glossar","status-publish","hentry"],"acf":{"blog_summary":"","blog_faq_schalter":"nein","faq_uberschrift":"","blog_faq_loop":null},"_links":{"self":[{"href":"https:\/\/www.captrader.com\/en\/wp-json\/wp\/v2\/glossar\/45326","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.captrader.com\/en\/wp-json\/wp\/v2\/glossar"}],"about":[{"href":"https:\/\/www.captrader.com\/en\/wp-json\/wp\/v2\/types\/glossar"}],"author":[{"embeddable":true,"href":"https:\/\/www.captrader.com\/en\/wp-json\/wp\/v2\/users\/20"}],"wp:attachment":[{"href":"https:\/\/www.captrader.com\/en\/wp-json\/wp\/v2\/media?parent=45326"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}