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Guide: How to Use a Tradinformed Backtest Model
Welcome to your Tradinformed Backtest Model
This page will help you learn how to use a Tradinformed Backtest Model.
Firstly, let me start by saying that, I am delighted that you have chosen to purchase a Tradinformed Model.
Using this model you will soon:
Become a better trader
You can use this model to learn about yourself. Find out what has worked in the past. Do not rely on hearsay or “market gurus”
Make informed decisions
Make the right moves at the right time.
Trade with confidence
Sleep easy at night and trade more relaxed than ever before.
Make money
By focusing your energy on winning strategies. Put your capital to work on good strategies.
Save money
By avoiding losing strategies. Strategies that have lost money in the past are likely to continue losing money in the future.
Develop new strategies
New ideas occur to us all the time. Use your Tradinformed model to test these and diversify into new markets.
Use your existing Excel skills…
Excel is one of the most widely used pieces of software on the planet. Almost everyone can use the basic functions and understand a spreadsheet.
And develop new ones
Like any new skill, learning to backtest will require learning some new skills. The programming skills you get when you learn how to use a Tradinformed Backtest Model are transferable and useful for lots of different projects and jobs.
Make a Start Now!
Hundreds of other traders have used Tradinformed models to learn about their strategies and improve their trading.
Make a start now and learn how to use your Tradinformed Backtest Model!
The guide below will help you to get started and begin testing your own strategies. Watch the accompanying videos to see me demonstrating everything.
What you will learn
- The Results Page
- Spreadsheet Skills
- How to Add Data
- Changing the Technical Indicators
- Changing the Strategy
- More Examples
- Further Resources
- Optimizer Tab
SEE THE LATEST MODELS
Check out the Tradinformed Shop to see the latest models and Tradinformed Membership to join up. These models are continually updated with the most recent strategies.
The Results Page
When you first open your model you should see the Results Page
Inputs
On the left, you have the Inputs into the model.
Starting Capital
The starting capital is how much money you want to simulate at the beginning of the test.
Cost of Trading % and Fixed Cost of Trading
These cells allow you to set a transaction cost per trade as a percentage.
This will vary depending on the market you are trading. Popular, liquid markets such as the EUR/USD, E-Minis, and Gold have a very low percentage cost per trade.
Other markets such as small-cap stocks, unusual currency pairs, and emerging market indices have a high cost per trade.
Profit Target and Stop-Loss Multiplier
These cells allow you to set up a profit target or stop-loss based on a multiple of the ATR.
If you select a profit target of 5. Your target will be set 5 * ATR from the opening price.
Trailing Stop
The trailing stop is calculated in exactly the same way. Except that, when the market moves in the direction of a trade, the stop-loss is re-calculated and the new value is re-calculated using the current ATR and the latest price.
The trailing stop is re-calculated after every period.
Leverage Factor
Changing the leverage factor allows you to increase and decrease the amount you are risking per trade.
When you change this value, you can see that the Potential Reward and Potential Risk values will change.
Tradinformed models are set up to test a Fixed Fractional Position Size. This means that you set the size of the trade based on the maximum loss that you are prepared to accept.
Entry Conditions
The Entry Conditions are inputs that vary depending on the model. These affect how your model enters trades.
In some models, you can select whether to use only long trades.
Other models have options to use different length moving averages or other technical indicators.
Exit Conditions
The Exit Conditions are inputs that affect how your model exits trades.
In some models, you can choose whether to have a close based stop. This changes the stop-loss and profit target from intraday (close as soon as the price is touched). To end-of-day (close if the price is exceeded at the end of the day).
Many models allow you to close trades based on other conditions. In the example above, the model uses a Bollinger Band Close. This is a Strength Close, which exits a long position if the price is greater than the upper band.
Strategy Results
The Strategy Results show how your strategy has performed.
Gross Winning and Losing Trades
These cells display the value of all the winning and losing trades.
Net Profit
This is the amount of profit that the strategy generates.
The model calculates net profit by subtracting the losing trades from the winning trades.
Profit Factor
The model calculates profit factor as the absolute value of the winning trades divided by the losing trades.
Winning Trades and Losing Trades
This shows the number of winning and losing trades.
Percentage Winning Trades
This shows winning trades as a percentage of the total trades.
Average Winning and Losing Trade
This shows the average value of all the winning trades and all the losing trades.
Largest Winning and Losing Trades
This shows the largest winning and losing trade.
CAGR
This is the compound annual growth rate of the capital over the time period of the strategy.
Max Drawdown
This is the peak drawdown of capital from a previous high.
Copy Strategy Results
This button allows you to copy the current set of results into the Strategy Review Tab.
The purpose of this is to allow you to test different variations of the strategy.
Capital Graph
The Capital Graph gives a visual representation of how the strategy has performed.
Capital is re-calculated at the end of each period.
Market Graph
The Market Graph shows how the underlying market has performed over time.
Results Page Video
Watch the video to see me explaining the Results Page.
Spreadsheet Skills
Copy and Cut
In Excel and other spreadsheet software, we use copy and cut along with paste. These functions are highly useful and allow us to move data around quickly and easily. However, it is important to realise that copy and cut are not interchangeable.
Copy is used to move data into, out of, and around the spreadsheet without affecting any incoming formulas or links. In a Tradinformed spreadsheet, copy is used very often. Copy is particularly useful when we are using relative references (see below).
Cut is used when we want to move data and move the formulas that point to this data. Cut is particularly useful when we are using absolute references (see below).
Cell References
One of the defining features of a spreadsheet is that one cell can reference another. A cell containing =C4 is referencing the value contained in cell C4.
In a Tradinformed spreadsheet, almost all of our formulas use references.
Absolute and Relative References
Tradinformed backtest models use relative and absolute references. They are both useful in their own way.
Relative references are the default when we enter a formula. Eg. =B2 + C2. If we copy this formula to the cell below it becomes =B3 + C3. So the references are relative to the cell that they are entered in.
Absolute references have a $ symbol. Eg. =B2+$C$2. If we copy this formula to the cell below it becomes =B3+$C$2. So the reference to cell C2 is now absolute and it does not matter what cell it is entered into. It will always point at Cell C2. Cut can be used to move the cell that an absolute reference points to. So if I cut the data in cell C2 I could move it to another part of the spreadsheet.
The reference would now point to this new cell.
Columns
Excel is very flexible and allows us to insert columns without changing our formulas. The formulas will automatically adjust to accommodate the new columns. This means that we can expand our Tradinformed models very quickly using the Insert Column function.
You should take care when you are deleting a column. If you accidentally delete a cell which is being referenced by a formula, you will end up with a #REF! error. This means that there is a reference error and you will need to find the formula that is causing this error. Use Ctrl + F to search for #REF to find these broken references.
Spreadsheet Skills Video
Watch the video to see me demonstrating the spreadsheet skills.
How to Add Data
Historical price data is the basis of all backtesting. In a Tradinformed backtest model the historical data is always at the left of the spreadsheet in the Backtest tab.
Historical data is available from many sources. To get some ideas about where to find data see the article: The Best Sources of free Historical Data.
File Format
Historical data is often in spreadsheet format, often as a .csv file. This means that it can be opened directly in Excel.
If the data is in text format .txt then you can use the Import Text File tool to get the data into Excel.
Data Order
Most historical data is in the format:
Date-Time-Open-High-Low-Close-Volume
This is the format used in a Tradinformed model, and it is essential that new historical data is in this format. If the data is not in this format, you can cut and paste columns to arrange it correctly. Not all models will have a Time or Volume column. If you want to include these columns, insert a new column and add the data.
Historical data in Tradinformed backtest models is always arranged from oldest to most recent. Some historical data is supplied from most recent to oldest. Rearrange the data by highlighting Column A and then Sorting A-Z.
Inserting the Historical Data
The simplest way to add the data is to copy and paste it into the Tradinformed backtest model.
Change the Historical Data Video – New Method
Newer Tradinformed models have a range of different ways to get price data. In the video below I demonstrate how to use them.
Change the Historical Data Video – Old Method (no VBA)
Older Tradinformed models and models without VBA use the manual method to get new data.
Changing the Technical Indicators
Many trading strategies rely on technical indicators, candlestick patterns and chart patterns. Many of these can be calculated using Excel.
Tradinformed Amazon Kindle eBooks
For a good range of indicators, candlestick patterns and chart patterns, there are Tradinformed eBooks available in the Amazon Kindle Bookstore. These books come with a free spreadsheet containing all the technical indicators.
You can also buy the spreadsheets directly from the Tradinformed Shop.
How to Copy in a Technical Indicator
The formulas for the technical indicators can be copy and pasted in the Tradinformed backtest model.
Before copying, we need to make sure that the source spreadsheet and destination spreadsheet are set up the same.
Firstly, make sure that the price data is in the same columns in the source and destination. If the columns are different insert a column to make sure they match.
Secondly, check how many columns the indicator needs and what letters they are. So the Stochastic Oscillator calculations might require 5 columns from G-K. Use the insert columns function to make blank columns in the Tradinformed model in columns G-K.
Thirdly, highlight the cells in the indicator spreadsheet and then copy the formulas. Make a note of the cell in the top left of the highlighted cells. Now paste the formulas into the backtest model starting from the same cell that you copied them from.
Change the Technical Indicator Video
Watch the YouTube video on how to add a new technical indicator.
Changing the strategy
Changing the strategy means changing how the strategy enters and exits the market. This is the most difficult part of testing any trading strategy.
Changing the Entry Criteria
The formulas for the entry criteria are contained in the columns titled Trade Long and Trade Short. A long entry is confirmed with the text “Long”, and a short entry is confirmed with the text “Short”.
Entry Signal
For example. If we want to enter on a MACD crossing we might have the formula template:
=IF(AND(current MACD > 0, previous MACD < 0), “Long”, “”)
The above formula will enter a long position whenever there has been a crossover from below to above the 0 line.
Change the Entry Conditions Video
Changing the Exit Criteria
Exit signals are shown in the columns titled Close. Here you can set any type of close. If you want to exit a trade when the Close Price was above the Bollinger Band, the formula template would be:
=IF(AND(Close Price>Current BB,previous Close Price< previous BB),”Close”,)
Change the Exit Conditions Video
Other Criteria
Often we might want to have some other criteria in the formula. For example, most Tradinformed models will only open a position when there are no open positions. You can see open positions in the Long Trade Running and Short Trade Running columns. This column will show either 1 (1 position open) or 0 (no positions open). We check there are no positions open by adding a formula that checks that the Trade Running column is 0.
How to Use the Optimizer Tab
The Optimizer Tab lets you quickly test a range of values. In this video guide, you can see me demonstrating how to use this.
More Examples
Quick Guide – How to Use the Advanced Backtest Model
Watch me go through the steps demonstrating how to use the Advanced Backtest Model.
Changing the Entry and Exits
In this video, I program the Stochastic Oscillator and the EMA. Then I show how to:
- Program the long and short entries
- Program the long and short exits
- Add a boolean TRUE or FALSE to test Long-Only and Long-Short strategies
Test a Candlestick Trading Strategy
Follow the steps in this video to see how you can use Excel to program and test a Japanese Candlestick trading strategy.
Further Resources
Example: How to Use a Tradinformed Model
This article gives some additional information about how to use Tradinformed models:
The Tradinformed Shop
There are a variety of different Tradinformed models available. Check out the Tradinformed Shop to browse the available models.
If you would like to develop a specific model and think that you need some consulting advice. Feel free to Contact Me to discuss this further.
Good luck with your Trading!