Welcome! Backtest Wizard is a Microsoft Excel template for PC or Macintosh that tests technical trading strategies on stocks, options, commodities and futures.
"Stand-alone backtest systems sell for $795 to $8,400," says Backtest Wizard developer John A. Sarkett. "At $199.95, Backtest Wizard 4.0 provides easy access to the world of strategy testing. (It is also included in the Option Wizard Online packages, $399.95 to $599.95). It is well-suited to a trader who wishes to work closely with the data to achieve the hands-on feel. It is ideal for paper trading as well. Interestingly, one trader writes "I am actually getting better mileage out of the Backtest Wizard than Tradestation."
Backtest Wizard harnesses the power of Microsoft Excel® to backtest, specifically the logic and solver functions, two of the least-used, yet most powerful aspects of the program. Additionally, we use the power of the Internet to access the last 200 days of high-low-close-volume on any stock or index. At this time, there is no data charge, making Backtest Wizard an unusual value.
To 'backtest' is to apply a trading strategy to historical securities price data, follow what happens next, and evaluate results. For example, a trader can determine the historical outcome of buying a stock each time its 5-day moving average crosses above its 20-day moving average, and/or selling a stock short each time its 5-day moving average crosses below its 20-day moving average. Additional technical criteria may be added to `filter' and refine buy-sell signals.
Backtest Wizard includes
- trend (moving average)
- momentum (stochastics)
- volume breakout-oriented (Force Index)
- rate of change
- Relative Strength Index
- ADX and ADXR
The first three are used to generate buy-sell determinations. "These are the basic tools of technical analysis, and many experts feel the basic tools work best," according to Backtest Wizard creator John A. Sarkett. There are different methods on how to trade these indicators. Our recommended compendium of technical analysis may be found in the gold-standard Technical Analysis by CNBC technical analyst John J. Murphy. This is the Bible for every trader.
Trading for a Living : Psychology, Trading Tactics, Money Management by Alex Elder discusses his Force Index in depth. It is also a superb read. Also, see our feature here on the web site, originally published in Stocks and Commodities magazine.
Trading theorists emphasize the importance of backtesting a trading system.
- Generates confidence to act when conditions meet system trading parameters, and only when those conditions are met.
- Shows the consequences of diverging from your system (e.g. buying on volume breakout and overbought condition).
- Generates ability to take a small loss when wrong. A typical successful system will have approximately 65% winners and 35% losers. You can take the losers more easily if you understand how they span the spreadsheet, and typically precede the next win!
- Allows the user to adapt trading methodologies to changing market conditions. Since it is a Microsoft Excel template, it is completely and utterly customizable.
With one button click, Backtest Wizard accesses date, price and volume data.
Backtest Wizard calculates basic technical data, e.g. Force Index, trend via moving average, and the oscillator stochastics. Change smoothing for each indicator by changing cell value. Use Excel solver function to optimize results!
You may also wish to consider two Excel add-in optimization programs: Crystal Ball, which includes the OptQuest optimization tool, or Risk Optimizer.
Backtest Wizard then uses Excel's logic function to indicate buy-sell points, and calculates maximum profit and drawdown during following 10 days. In this example below, 13 day exponential moving average Force Index changes from + to - with K and D at 80 and 82 (overbought). Potential profit is just .375. (In the real world market, this trade would likely have been a scratch, not a profit.)
But on day 73, signals reverse, a buy is initiated at 23.75, and 1.25 gain realized on day 76.
The next-to-last section is custom system testing, in this example, with trend, force and stochastics. On day 180, with K leading D down, and 5 DMA leading 20 DMA down, Force Index changed from + to -, initiating a short sale. Profit stood at 1.375 by day 189. There was no drawdown. Trading this system generated 10 trades in 200 days, total gain 5.75, total drawdown 8.75.
Finally, Backtest Wizard generates 200 days of theoretical options prices.
Here's a set of FAQs aimed at the developer to further explain the template:
Q. Why did you create Backtest Wizard?
A. I wanted to be able to generate a buy-sell recommendations to support or discredit trading ideas -- and with the click of a button.
Q. Why not just look at charts?
A. We look at charts constantly. Charts show key technical events (e.g. moving average crossovers, overbought-oversold), but working with the numbers gives a different feel, a different texture to the analysis, in my opinion.
Q. What's the best feature of your program?
A. It builds confidence. You know, you don't hope. You know 7 out of the last 10 times, when x, when y, when z, then A! But maybe just as importantly, 3 out of the last 10 times, B!, so clear out quick. If that's all you get out of Backtest Wizard, you are way, way ahead.
Q. What's the best function of your program?
A. As an Excel file, it is completely customizable. The basic inputs are:
Backtest Wizard provides moving average, stochastic and Force Index formulas loaded into the columns. You can throw these out, keep them, add others, change time frames, etc. Just copy and paste, and voila, you are testing your own systems.
Some might call it a drawback, but getting in and working with one security at a time, that is, rolling up your sleeves and really 'seeing' the data is a plus sometimes. You might draw a parallel to those individuals who like to draw charts by hand. It's a matter of 'feel,' or `intuition', which, in my opinion, is built up in an individual from hundreds-thousands of experiences, in this case, hundreds of trading days summarized as numbers on a spreadsheet. (Pictures have emotion, numbers have less, I think.) I think you can develop this intuition, this feeling, and trade more confidently and successfully with it, and hopefully Backtest Wizard can help.
Q. What are the drawbacks?
A. You need Microsoft Excel (PC or Mac). Also, it only handles one security at a time, it doesn't scan hundreds of stocks automatically. There are programs that do this, however, $795 to $8,400 price range, including Behold!, TradeStation, First Alert, etc. Check trading magazines for other vendors as well.
Q. Where do I get the data?
A. In our online version, we use the web query function of Excel to retrieve historicals from the Internet. In the offline version, you may retrieve historicals from your regular market software via export, or from commercial sources.
Q. How can Backtest Wizard be reviewed?
A. Please download our Option Wizard Online free trial. Option Wizard 7.3 -- which is offline software -- also features Backtest Wizard, but this version does not automatically retrieve data from the Internet.
Q. And to order . . . ?
Please visit our online store.
Q. Don't you also market Option Wizard?
Glad you mentioned that. Please visit the OptionWizard page as well, and learn about our award-winning options analytics program for Microsoft Excel.
To see all Option Wizard, Option Wizard Online, and Backtest Wizard products and prices with special combination pricing:
PLEASE VISIT OUR SECURE, ONLINE STORE
Q. Do you accept credit cards?
A. Yes! Ready to buy? Jump to our online store.
Q. I like the thinking presented here but frankly, I need to do some more reading first. Ideas?
A. Consider: Interview: Howard Abell of Innergame Partners, p. 62, September 1996, Technical Analysis of STOCKS & COMMODITIES. Also, get the September TASC 1995 interview with Market Wizard Robert Krausz who describes how he backtests by hand ! Check their back issues as well for other articles on backtesting.
Q. Sum it all up.
A. Don't guess, backtest! Backtest Wizard is a basic yet powerful tool to do that. If it helps you act more decisively when the market meets your specs, or take a small loss (instead of a big one) when you're wrong, it's paid for itself 10 times over the first time.
More questions? No problem. E-mail to firstname.lastname@example.org.
For further study, may we recommend:
The Option Wizard Online Discount Bookstore.
Meanwhile, please bookmark this page. Thanks again for visiting and very best wishes in your investing and trading.
I leave you with two favorite quotes that remind us: find your own way, trust your own way, discount the advice (both well-meaning and self-serving) you will receive on your way. I'm confident that backtesting your trading method will help you do just that.
Meeting a Zen master on the road,
Face him neither with words nor silence.
Give him an uppercut,
And you will be called one who understands Zen.
I have not failed.
I have discovered 1200 materials that wouldn't work.
CHICAGO -- Option Wizard is a registered trademark of Sarkett & Associates, Inc. -- 111[an error occurred while processing this directive]