Things needed for backtesting - Basic course of Japanese stock system trading II
What you need for backtesting
I am Takeshi Nishimura of Fair Trade Co., Ltd., a securities analyst and seminar lecturer on system trading. In this course, I will explain in simple words and expressions so that everyone who views this can understand “system trading” from the basics. Please stay with me until the end. The theme this time is “What you need for backtesting.” Now, let's get into the content.
In the course “What is System Trading?” I briefly explained what kind of investment method system trading is. There are many people in the world practicing various investment methods. In each of these methods, there are undoubtedly many people who consistently generate profits. I myself do not believe that system trading is the only invincible investment method.
However,the part that is “proven effective by past data”is a major strength that is not found in other investment methods.
The purpose of this course is,to attract as many people as possible to interest in system trading. Or, for everyone who has not yet actually practiced system trading, it would be wonderful if you actually start practicing system trading.Of course, if you listen to rules (methods) that can be used immediately as they are, you may be able to make a profit temporarily. However, if you imitate others’ rules, it becomes difficult to grasp the fundamental reasons for profits when they occur, or the reasons for losses when they occur.
If you cannot grasp those fundamental causes,it will be mentally difficult to continue operating for a long period.
Because of this background, in the end, I would really like you all to perform backtesting (verification using past data) with your own hands and trade with confidence using the rules you have developed.
I know the introduction has been long, but let's get to the main topic. This time, I will talk about the options you should consider when you decide to start system trading.
Since we are talking about system trading,to find an effective trading rule, of course, backtesting using historical price data (for stocks) is required to test the rulesFor backtesting, ideally, you should create your own software for backtesting.
However, for beginners in programming, creating software from scratch is a lot of work and time consuming.
Therefore, as a compromise, two realistic options are listed below.
1. Use Excel
2. Purchase commercially available software
First, I will explain “1. Excel.” The advantage of Excel is that you do not need to purchase expensive software. In other words, the upfront cost is low.※If you do not have Excel, you will need to purchase Microsoft Office or similar, but it is relatively affordable
However, Excel’s original functions are not designed for system trading but for spreadsheet work, so some study of functions is necessary, which is a disadvantage. Also, there is a limit to how much data you can handle, so it is very difficult to validate all roughly 4,000 listed stocks. Therefore, it is more suitable for validating single or a small number of products such as “Nikkei 225 futures (including mini)” or “FX.”
By the way, to learn validation with Excel, the following is recommended.
[Become a System Trader who can validate by yourself - Masaki Saito’s System Trade Academy]
>> http://www.fairtrade.co.jp/saitomasaaki/academy/
Next, I will explain “2. Commercial software.”
When starting system trading seriously, of course it is ideal to acquire some software. However, I also feel uneasy about asking everyone to purchase expensive software. Therefore, even without buying these software,“what can be done with system trading,” “specifically how to construct rules”I plan to carefully explain by showing my own verification results to you. It is published in other course topics, so I would be grateful if you also view those.
The theme for next time is “Breakout with 37.1% winning rate” — Basic Course of Japanese Stock System Trading③.
