Backtesting Stock Trades

backtesting stock trades - stock chart

What is backtesting a stock trading strategy?

Backtesting is the process of testing a trading strategy in prior time periods. A computer is programmed with the trading logic and runs through historic data to test any number of variables and multiple trading theories quickly and easily to develop an effective stock trading strategy.

So... Why no backtested stock trading statistics?!

Three simple reasons:*

  1. Lacking stress - Live trading is "stressfull". No matter how much trading experience a trader may have be it trading commodities, forex, or stocks. Trading with real money on the line raises the physiological levels of the body. Backtesting stock trading strategies doesn't bring in the measure of what the real stress levels a trader may be experiencing. The psychology of trading is learned through years of stock trading and by reading stock market psychology books. Backtesting seems somewhat unreliable since the computer is missing this element.
  2. Picking and choosing - Backtesting stocks allows for manipulation when humans pick which stocks to backtest. Based on the incredible ROI of this stock analysis trading system the accusation can be leveled that poorly performing stocks were excluded from the test.
  3. To good to be true - The rate of return of this online stock trading system is so outstanding that it becomes unbelievable to traders who haven\'t delved into the depths of understanding all aspects of analysis used to pick winning stocks. Therefore, by trading live, the trader can see the succesful results of the stock picks as time progresses.

*Read: How this stock analysis trading system works if you haven't already done so.