Category: Guides

Has it ever happened to you that the trading strategy you create works excellently at first and you start encountering losing trades? 

There is literally no way to testify and determine a strategy’s performance unless tried and tested on your chart. 

Quantifying the risk involved with your trading strategy is the core fundamental of the Backtesting method. Rather than using some random tricks to calculate the effectiveness of your trading strategies, this article provides a step-by-step guide on how to backtest them. 

What Is Backtesting?

Backtesting refers to the process of using historical data and implementing your trading strategies on them in order to identify the effectiveness of its performance. 

Backtesting is one of the most important features in the trader’s toolbox which makes it even remotely possible for you to assess the accuracy of the strategy on all the available past data for the preferred symbol.

It is crucial to test the waters before actually getting into a real trading environment and ending up causing a mess of your financial conditions and trading goals.

Backtesting can be done either manually or automatically. In the manual procedure, investors or testers find out the probability of the success of the strategy whereas, in the automatic process, specialized software does the job for you.

There are quite a number of platforms through which you can backtest your strategy, some paid and some free. One of the software platforms you can receive reliable results from is TradingView. 

How To Backtest The Trading Strategy On TradingView?

TradingView not only allows you to test out your entire trading strategy in a bunch of trading situations but also grants you the permission to check out individual parts of a new strategy setup as well as candlestick formations. Follow the steps given below in order to backtest your trading strategies on TradingView. 

1. Gather Data From a Wide Array Of Charts

The very first step of backtesting requires some kind of historic data which can range from a time frame between being from a few weeks ago or years. 

If you are testing a supposedly short-term strategy on small time frames, use the trading data gathered from at least a couple of weeks ago. On other hand, if you are using higher time frames then use data from a recent few years. 

2. Set Up The Parameters And Manage Risks

Next up you are required to define or set up parameters for your strategies such as exit conditions, and entry conditions as well as manage the amount you are willing to risk. 

Try imposing as many conditions as possible in the form of “If X happens then execute Y”. This step also incorporates risk management and therefore you have to decide whether you are risking the same percentage on every trade and what specifically is this amount. 

It is to be noted that all of the parameters are being used as basic rules for measuring and testing your strategies. These said parameters can be redefined at any given point to figure out which are more profitable than the other.

3. Use TradingView’s Rewind Tool

The platform offers a dedicated rewind tool that can be used to go back in time so that you can delete the predictive nature of where the deliberated chart is heading. This allows you the ability to look back at the trades no matter however far you wish, it can be years, months, or weeks in the past. 

4. Analyze The Price Charts 

Next up, you can monitor the price charts for entry as well as exit signals. Backtesting through all of the data takes time, more than just a session so be patient. 

You can continue to deeply analyze the signals until and unless all of the trades up to the current time have been written or marked up on the chart. 

5. Tally And Measure The Profits 

After the whole process is finished you can start summing and totaling up all of your trade results in order to determine the profitability ratio of your chosen trading strategy over the period of time.

What Are The Pros And Cons Of Backtesting?

Backtesting has its own set of advantages and disadvantages and some of which are as follows.

Pros Of Backtesting

1. Backtesting your trading strategies does not involve real threats or repercussions of that live trading situation.

2. It helps traders get through knowledge and understanding of the market while researching and testing out strategies designed for real trading markets. 

3. The backtesting provides a sense of direction to investors related to important investment decisions such as when and which assets to buy or sell. 

4. Supported and accessible from a web-based platform you can test various trading commodities such as Bonds, Cryptocurrencies, Forex, etc. 

Cons Of Backtesting

1. Testing strategies on small sample sizes of trading data or not testing enough and through can dramatically affect the performance as well as the results associated with the strategies during live trading. 

If you are starting out as a beginner investor in the stock market, it is advised by the experts that you learn the ropes before jumping right in and risk losing all your money. The stock market has constant fluctuations and involves a complex understanding of how it works therefore one of the smartest ways to learn trading is through the usage of paper trade.

What is Paper Trading?

Paper trading also referred to as simulated trading is a way through which investors can participate in the institutional market environment where they can sell as well as buy securities using fake money. 

Paper trading negates the risks involved in trading with actual money by supplementing you with the paper money to trade in the stock market. The stock market simulator allows you to create, execute and test your various strategies on the actual market conditions to learn your way around trading, companies and more.

One of the most important advantages of using paper trading is that there are no losers irrespective of how much you gain or lose out of a potential trade opportunity since the money was fake all along. On top of it, you also get to monitor the performance of your hypothetical portfolio in real market conditions.

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What Is TradingView?

TradingView is a comprehensive charting platform and social network community for investors and traders of various financial markets. The platform provides a real-time price feed for markets related to cryptocurrencies, stock, forex and other commodities. 

TradingView has a dedicated community of more than 30 million monthly users on average and provides them a space where they all can share their knowledge, discuss future forecasts, and more. The platform has accumulated over 8 million custom scripts along with ideas from its customers to date. 

It offers both web and mobile platforms for trading, has an easy-to-use interface, offers an excellent trading experience, and provides tons of advanced features. Some of the functionalities you have access to include indicators, paper money, reports on trading strategies, alert conditions, financial analysis, live streaming platform, enhanced watchlists, auto fib retracement, and more. 

Getting Started With TradingView

Let us look at TradingView’s onboarding process real quick and follow the steps given below to do the same.

1. Navigate to the official TradingView website and click on the “Get Started” button present at the top right corner of the home page.

2. Next up you will be redirected to the pricing plans page of TradingView where you can choose the monthly or yearly subscription package according to your needs. 

3. Following the selection of membership plan, sign up using either of the following credentials; Google, Yahoo, Facebook, Apple, LinkedIn, Twitter, or Email.

4. Enter the payment details, complete the transaction process, and you are done.

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Recommended: If you are new to TradingView then you must check this article on how to use TradingView & best TradingView indicators.

How To Do Paper Trading On TradingView?

To use paper money as a way to start trading on the various assets on TradingView, you are required to sign up for an account. However, if you already have one, repeat the steps given below to get started with paper trading. 

1. First, you need to connect a paper trading account. In order to do so open a chart and click on the “Trading Panel” tab present at the bottom. Here you can select your broker and login into the chosen brokerage account. Click on the “Paper Trading” icon present on the left-hand side. 

2. Since by default your TradingView starting account balance starts at $100,000 you will be required to reset it. For doing so, click on the Gear icon present in the right corner, and with the help of the dropdown menu click on the “Reset Paper Trading Account” button. You will be prompted to enter your preferred account balance and once done click on the “Reset” button. 

3. You are now ready to create an order therefore right click anywhere on the chart, and click on the “Settings” button. In the settings panel, open the “Status Line” tab to ensure that the “Show Buy/Sell Buttons” checkbox is ticked and hit the “Ok” button. 

4. The Buy and Sell buttons will be displayed across the screen on the upper left corner and you can click on any of the desired buttons.

5. Upon clicking, the Order Panel will be presented at the right side of your chart and here you can fill out the form with appropriate data and confirm your order.

6. After you submit your paper order, the platform will automatically execute it. At the bottom of the page where the “C” tab is present, you can analyze the list of all the open positions and orders.

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Pros and Cons Of Using Paper Trading

Paper Trading has its own set of advantages and disadvantages and some of them are as follows. 

Pros 

1. Trading Without Risk – Paper money allows new investors to trade in a simulated market environment where you can purchase and sell almost any asset using fake money and therefore eliminating all the risks of losing your hard-earned revenue. 

2. Learn Trading – For beginners in trading, there is no better way than to actually try using various hypothetical portfolios and executing strategies to learn. Even if you make mistakes there are not any real strings attached to your decisions. 

Cons 

Euphoria Trading – Experts have collectively agreed that paper trading invokes reverse emotions in investors as losses are not taken seriously. Traders also take on risks they otherwise wouldn’t have if the money they were using were real and therefore these miscalculations and undisciplined demeanor can cost them financially in the future. 

TradingView is the best charting platform that provides a variety of free financial tools for planning trades and investments as well as premium subscriptions for more sophisticated capabilities. For users, TradingView\\\’s incredibly smooth and effective user interface is one of its many qualities that makes it suitable for all types of traders.

Step 1: First you have to open the TradingView website and click on Get Started

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Step 2: Then you will be shown different plans you can click on whichever you want to try.

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Step 3: Then you have to Sign in with Google, Facebook, Twitter, etc.

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Step 4: Then you have to fill up your username or upload a photo of yours and click on Continue.

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TradingView is the world’s most popular charting and technical analysis platform. Most of it is due to the platform being free for all. TradingView has almost all of the most advanced technical tools on its platform, this makes it the first choice for traders as they can do extensive technical analysis without having to pay costly subscription fees.

It is also a great choice for beginners as they can learn technical analysis and charting for free. TradingView’s smooth, simple and modern interface also attracts a lot of its users. Most of the traders around the world use Tradingview, that’s why it is very easy to find tutorials on Tradingview.

TradingView also has a strong trader community that is determined to help and support new traders joining the platform. Another major advantage TradingView has over its competitors is its mobile app. The app has all the features that the website has and it makes trading easier as traders can track their favorite stocks or crypto on the go.

TradingView is the perfect platform for technical analysis as it not only provides a lot of indicators but also lots of drawing tools that can be used to study and analyze price movements and chart patterns.

How to Create an account and Use TradingView

Even though you don’t necessarily need an account to use TradingView’s basic features, it is useful to save all your data and customizations so that you don’t need to adjust the tools every time you open TradingView in your browser. Also, having an account lets you create watchlists where you can keep track of all your favorite crypto, forex, stocks all the time. 

Signing up is pretty easy on TradingView. You can click on the ‘Get Started’ button on the top right of the homepage which redirects you to the subscription plans page. 

TradingView has 3 paid subscription plans and a free one. The major difference between the paid plans and the free ones is that the paid subscription lets you do multitask. (Multiple indicators, chart screen & etc.) 

Once you have selected the plan, you can sign up using your Google, Facebook, Yahoo, Apple, Twitter, or Linkedin account or you can use your email. 

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Most of TradingView’s technical features are on its charts. So, to access the charts section, you can click on the ‘Charts’ button on the top of the homepage.

Charts

Tradingview’s charts are very simple to use and understand. Just as you land on the Charts page, you’ll notice the candlestick graph of a random stock, futures, crypto, forex, CFD, etc. You can go to any stock of your choice by just typing the name of the stock. As you start typing the symbol search bar will automatically appear.

Once you select the stock you will notice the details of the stock on the bottom right of the page that shows general data of the stock, like its performance in the last few months, its open and close, percentage change, current price, etc.

Above that would be a pre-curated watchlist that you can change according to your needs.

The graph is very customizable. You can smoothly zoom in, zoom out and scroll through the graph with your cursor. The timeframe is set to a day by default and you can change it by clicking on the ‘D’ on the top left of the screen. This will bring multiple options from 1 second to 1 year. Timeframes of less than a minute are available for paid plans only.

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Apart from the timeframe, you can adjust the type of chart as well which is just next to the timeframes button.

Indicators

TradingView is known for its vast indicators. It has about 500 built-in indicators and more than 5000 community indicators. On the top of the page, there’s a button that says ‘fx’. 

Clicking on \\\’fx\\\’ will open a separate box where all the indicators are listed in alphabetical order. You can search for your desired indicator and apply it to the chart.

Once an indicator is applied, its name and all the data come up on the left of the chart. If you hover the cursor over it, you’ll find 4 more options – hide/unhide, Settings, Source code and Remove. You can click on the settings to change the inputs and color of the indicator to suit your preferences.

If you click on the ‘Source code’ a new mini window will open at the bottom of the screen that shows the script of the indicator. Traders use this script to create add more formulas to the indicator or even create new ones. They can then share their indicators on the TradingView community so that others can use them too. Every indicator on the platform has an open-source code.

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Free users can apply only up to 3 indicators on the chart at a time. To add more, a paid plan is needed.

Drawing Tools

Another major advantage of using TradingView is its technical drawing tools. The left-hand side of the screen is filled with multiple tools. From a simple pen tool to Fibonacci retracement and Volume profiles, or even tweets and emojis, users are given uncountable tools to draw trendlines and patterns, calculate price movement and write notes all on the chart. This level of customization and personalization is what makes TradingView the most favored platform for traders.

Alerts

TradingView has a great alert system that can be applied to almost anything on the chart. On the top of the graph, there is a ‘Create Alert’ option signified by a clock. 

Over there you can create conditions for the alert on almost anything from indicators to simple drawings, or even a particular value. You can also choose where and how you want the alert to be.

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TradingView is a free-for-all charting platform that offers the most technical tools on the smoothest easy-to-learn interface possible. It is also highly customizable and can be personalized in any way the user wishes. It has a wide range of indicators and drawing tools and a huge database covering market data of over 20 years from stock exchanges of about 18 countries in Asia, Europe, and the Americas.