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How to test a simple stock trading system


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How to test a simple stock trading system

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  #1 (permalink)
 mcteague 
New York NY USA
 
Experience: Intermediate
Platform: esignal, thinkorswim,
Trading: Stocks
Posts: 122 since Oct 2012
Thanks Given: 63
Thanks Received: 35

I need to backtest a simple trading system. The testing should not only help me verify the entries of system. But also help me determine correct stops and targets. Which can if incorrect turn a good system into a money loser.

Broadly speaking this is the simple system: Trade high volume, S&P 500 stocks with fairly high Average Daily Ranges. ADR minimum 3. Maximum 7 But not meme stocks or anything crazy. These should be in the $50 to $200 range approximately. I avoid crypto. So right now we are basically talking AMD AAPL AMAT

Pick one. We are trading it on a 1 minute chart. Use a simple well established indicator. Lets say MACD. So for example we enter when we get a MACD cross of the signal line.
Our Goal is to make 1 point per day. This is likely going to be over several trades.
It just seems likely that we should be able to find 1 point in a stock that is ranging 3 or more points per day.

Lets say we base or target and stop on the 3 minute ATR. Lets say that is $0.25. We can pick some other method of picking our stops and targets.
We need to know what percentage of trades after the indicator signal. (IN this case MACD cross) Fail or are successful. This way we can adjust accordingly

A basic point is that if you can make 1 point a days on a $100 stock in 100 days you can double the shares you are trading.. So if you can only afford 1 share you will increase to 2 then 4 etc. Slow and steady.

But there are a lot of things to test. What is the success rate of the indicator signal. And what is the best default stop target system? On a 1 minute chart there is not always time to completely map out short term support and resistance. You can do some of course , but it is good to have a default stop and target based on ATR.

This system is designed to in time provide reliable consistent income. Obviously the more money you start with the quicker you reach that goal.

I trade on TOS. It does not seem to have a good backtesting system for stocks. I need something that can backtest on the 1 minute chart. Can ninja do that ? Are there better systems for backtesting.
And of course the less money I spend the better. As long as I get the information I want.

So thatís the basic system.

Thanks for any information, advice or opinions.

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  #2 (permalink)
 mcteague 
New York NY USA
 
Experience: Intermediate
Platform: esignal, thinkorswim,
Trading: Stocks
Posts: 122 since Oct 2012
Thanks Given: 63
Thanks Received: 35

As I am getting no responses, let me rephrase this.

Which tool or platform is best for back-testing a technical stock trading system that uses 1 minute charts?

Thank you

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  #3 (permalink)
 kevinkdog   is a Vendor
 
Posts: 3,610 since Jul 2012
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mcteague View Post
As I am getting no responses, let me rephrase this.

Which tool or platform is best for back-testing a technical stock trading system that uses 1 minute charts?

Thank you

There are a ton of platforms that can backtest like that. I use Tradestation, but Multicharts and NinjaTrader are 2 other popular test platforms. Python is becoming more popular. They all have strong points, and weak points.

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