Running a backtest: how to identify the best investing strategies


Everyone has their pet investing strategies: some investors bet on stocks with growing revenues and net profits, others look at EBIDTA growth, P/E or a combination of numbers. Other investors look at technical numbers like RSI before investing.

The challenges for these investors is that it is not possible to check the potential returns of a strategy beforehand – does their investing rationale actually work? Is there another strategy that may be better?

With backtesting, you can now find out. Both for your stocks, and for specific strategies.

Backtesting is a powerful product that tells you what returns these strategies would have delivered in the past.

Each pre-built strategy on the website comes with a ‘Screener Backtest’ option to see returns.  This is there in the left menu in the screeners section (image 1).

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The screener menu

You can also run backtests for the strategies you create. To run a backtest on a screener that isn’t yours, you can clone the screener.

When you click ‘Run Backtest’, you see the following fields.

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Run a backtest

Once you run the backtest, you get a result that looks like this.

Snapshot result of a backtest

This is your results snapshot. The backtests show you returns from the strategy for the entire period you ran the test for. It also shows you the average annual return (CAGR).

Click on the cumulative returns number, and you see the full backtest analysis.

You see a graph of returns for the entire period, compared to the benchmark you selected (in this case, Nifty500):

Screen Shot 2018-03-29 at 2.00.19 PM
Graph showing strategy returns for the entire period, compared to the backtest. This backtest is for a high DVM screener.

The test results give you a breakup of winner and loser stocks in your strategy, as well as your period returns (depending on whether you chose quarterly periods, or monthly/weekly/daily). You can see detailed stock entries and exits.

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Backtest Summary


Detailed stock entries and exits are available in the backtest result.

Screenshot from 2018-06-20 14-58-12
Entries and exits of stocks for each time period

The period analysis gives you a sense of how the returns were distributed, over the time you chose:

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Period analysis of a backtest

You can also see a video walkthrough for building a strategy, and running a backtest.

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