Stock Backtesting

Best Stock Backtesting Software

7 min read

Stock backtesting is very important to do. If someone handed you the keys to their Formula 1 race car, would you take it for a spin around the track at full speed? I certainly hope not, or at least I hope you have your will up to date. Reckless behavior like this is like live trading without learning how to backtest a stock. So before you go out there and start risking your hard-earned dollars, you must fine-tune your driving strategy. Or, in this scenario, your trading strategy. Stock backtesting is going to help you—a lot. You’ll see why I say that with confidence if you keep reading.

Since day trading relies heavily on the strategy used for trading (i.e., bull-flag pullback or dip buy, for example), you must be able to backtest your strategy.

And by backtest, I mean by the hundreds to see if your plan will work. So you trade only the promising ones regarding paper trading and, eventually, real-time trading.

No one likes to hear that it takes stock backtesting a lot to become good. We’ve seen over and over how quickly people quit trading when they don’t make a billion dollars in the first month. You think we’re exaggerating. We’re not.

It’s like they want that Formula One car to be theirs immediately. Who wants to spend time perfecting a strategy? Not the average trader, unfortunately.

But the more you’re willing to work, the better you’ll be. So, that includes learning how to backtest a trading strategy. It is fun to paper trade when you’re perfecting your favorite strategy.

Importance of Stock Backtesting

Do you have a hot new strategy you want to try? With $100,000 in “pretend” capital, you can build a portfolio and test strategies without taking on real risk.

The fringe benefits include clean underwear – you’re not crapping your pants watching your trade go sideways, a house to live in – your spouse didn’t kick you out because you were gambling, and your retirement savings are untouched – see gambling above.

You will build confidence as you start to make money because you took the time to backtest a stock. Backtesting also takes the stress out of trading; you know exactly when to enter and exit a trade. 

With a day trading simulator, you can hone your day trading skills while protecting your hard-earned cash. This is because they mirror the broker’s working trading platform. Essentially, they provide the user with a virtual practice environment close to what you can get. You get “virtual” money so you can practice your trading strategies without going broke.

The best simulators give practice users access to the same tools and environment a regular day trader would use: watch lists, stock screens, research, and live or slightly delayed data feeds. When shopping for a simulator, look for stock backtesting equipment.

Day Trading Course Options Trading Course Futures Trading Course
DESCRIPTION Learn how to read penny stock charts, premarket preparation, target buy and sell zones, scan for stocks to trade, and get ready for live day trading action
Learn how to buy and sell options, assignment options, implement vertical spreads, and the most popular strategies, and prepare for live options trading How to read futures charts, margin requirements, learn the COT report, indicators, and the most popular trading strategies, and prepare for live futures trading

Stock Backtesting Simulators

A close resemblance to the market. You want an authentic stock backtesting experience that feels like the real thing. To that end, it will give you a chance to feel and get your emotions under control.

The type of security you want to trade. The simulator you choose needs to match you and your needs. It wouldn’t make much sense to backtest a stock that doesn’t match the security you want to trade. 

Quality tools and charting. What’s the point of trading if the charting tools and platform suck. Honestly, this will make or break you as a trader. So, it doesn’t hurt to take the extra time to ensure you’re using the right platform, simulated or not.

What Will You Learn?

  • The best trading setup for your needs and goals
  • How your trading strategy would have worked in the past
  • Your optimal risk per trade
  • Which markets does your strategy work best
  • If your entry and exit triggers are well-adjusted

How to Backtest a Trading Strategy

Stock backtesting means you have historical data on how your strategy will work. You can account for trends, patterns, price action trading, etc. This is the bread and butter of traders. When you backtest a trading strategy, you can see how well it’ll do moving forward.

We’d like to know how our trading strategy will do, right? So get backtesting that triple bottom pattern (or any other for that matter!)

Backtesting a Stock Simulator

Regardless of the resources you use or your trading strategy, simulators allow you to construct a portfolio and determine whether your research correctly identifies winners or losers. Of course, simulators also provide an opportunity to learn something about yourself. 

Watching the value of your simulated portfolio rise and fall gives you a sense of whether you would be comfortable with watching the balance in your portfolio decline when the markets drop. It also helps you figure out at what point you would cut your losses and sell and at what point you would take your winnings off the table.

Can You Backtest in Thinkorswim?

ThinkorSwim has one of the most sophisticated stock trading simulators available today. We can say enough positive things about it, and it’s one of our favorite platforms.

Regarding charting, Thinkorswim’s good reputation precedes them so much that many traders will open an account with TD Ameritrade with minimal funding.

They use Thinkorswim to plan their trades and chart while trading with another broker like Interactive Brokers.

The money in ThinkorSwim goes to their charting platform. That’s why it’s such a great charting platform. Meanwhile, other brokers put their money into their trade speed execution.

 In the case of TOS, I need to point out two great features: the virtual trading simulator and the ThinkOnDemand stock backtesting tool.

Virtual Trading Simulator

Surprisingly, few online brokers offer mock trading accounts on their platforms. TD Ameritrade is one of them. Their paper money virtual simulator is a desktop-based platform geared toward advanced and frequent traders. 

What’s great is that you get $100,000 in practice “money” and access to a margin account. Traders can backtest strategies, access foreign exchanges and futures, and practice backtesting. Moreover, non-customers may be able to register for a free trial. I suggest taking this step before you commit.  

ThinkOnDemand Backtesting Tool

Thinkondemand is a backtesting tool that enables users to test trading strategies on historical data. You can use their fundamental data tab to get company stats or their Fast Beta tool to analyze securities that break out historical trends. These are often considered premium features by other online brokers. However, these tools and the entire Thinkorswim platform are free to all TD Ameritrade customers!

Final Thoughts: Stock Backtesting

Backtesting a trading strategy can and will give you a competitive leg up. With actionable insights on what you can expect when you go live, you’ll be well on your way to profits.  

Unlike some trading communities, Bullish Bears doesn’t promise you will become an overnight millionaire or make enough to buy and test drive that race car next month. Instead, they promise to mentor you until you are successful and will lay out a strategic road map for how to get there. Thanks for reading, and be sure to comment below if you have any questions!

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