Using the Backtest Tab

This tab enables you to discover how much profit particular settings of moving averages would have produced in the past. It does this by performing a backtest, which simulates the trading of shares using historical data. Note: Although these simulations can provide general guidance as to the best settings for the immediate future, you can never assume that what has worked well in the past will work equally well in the future.

Average 1

Enter the number of days over which the first moving average is to be calculated. Either enter the number directly or use the Up/Down arrows to the right to alter the existing value.

Average 2

Enter the number of days over which the second moving average is to be calculated.

Type option buttons

Select whether you want to use Simple or Exponential moving averages. Simple moving averages apply equal weighting to all prices in the specified period, and are therefore slower to react to recent prices changes than exponential moving averages, which apply progressively greater weight to more recent prices.

Spread Bet check box

Tick this check box to backtest using simulated spread bets, where the profit or loss is made according to the points difference between the buy and sell price.

Min. Bet

Enter the minimum bet size per point, which is also the initial bet size. As profits are made, they are reinvested to increase the bet size, but successive losses will decrease the bet size until the minimum stake is reached. Further losses will not decrease the next stake, but will increase the margin or deposit requirement.

Max. Bet

Enter the maximum bet size. Reinvested profits will increase the bet size, but not beyond the maximum specified.

Margin Factor

Enter the Margin Factor, also variously known as the Deposit Factor and the IMR (Initial Margin Requirement). This figure is quoted by the spread betting company to determine the deposit required to make a bet, calculated as the Margin Factor multiplied by the bet size.

Spread

Enter the difference between the buying and the selling price, as quoted by the spread betting company.

Trade Type

Use this list box to specify whether you want the backtest to trade long, short, or both. A long trade is the traditional kind, opened by buying and closed by selling, meaning you profit if the sell price is higher than the buy price. A short trade is opened by selling and closed by buying, so you profit if the price has fallen; the buy price is higher than the sell price. The simulation will 'go long' when the lower moving average moves above the higher moving average and 'go short' when the lower moving average moves below the higher moving average.

Optimize check box

Tick this check box to find the moving average values that gave the greatest overall profit over the time period shown in the graph, using the Type, Go Long, and Go Short settings you have specified. This backtest may take several seconds to execute, after which the Average 1 and Average 2 settings on the Backtest tab are changed to those that produced the greatest profit, and the Results box will show details of trading with these settings. A Profits graph is displayed beneath the Results box. This represents as shaded dots the profit for each combination of moving average periods, with the lightest dots representing the highest profit. You may cancel the backtest at any time by clicking the Cancel button.

Clear Results check box

Tick this check box to clear the Results box before new results are displayed in it.

List Trades check box

Tick this check box if you want details of every position traded to be displayed in the Results box.

Start button

Click this button to start the backtest, displaying the results below. The backtest is performed on the share or index currently shown in the share price graph on the right, trading over the period specified in the Range box below the graph. The profits are compounded, meaning they are fully reinvested into subsequent trades.

Results box

Displays the results of each backtest. New results are appended to previous ones unless the Clear last results check box is ticked.

Profits graph

This graph is produced upon clicking the Start button when either of the Optimize options is selected for the backtest. The profit for each combination of moving average periods is represented by a dot that is lighter the higher the profit. White indicates the highest profit, whilst black indicates the lowest profit, or greatest loss. You can hold down the mouse button on the graph to reveal the profit for different moving average periods. The main share price graph changes dynamically to show the current moving averages.