Trend-Following Indicator Back-Tests

Have a look at my research on trend-following indicators in which I systematically analyzed 10 ways to ride the trend in US stocks. The back-testing was done with Wealth-Lab Pro(R) for Fidelity Investments. The stocks considered were the S&P500 components. The 10 indicators tested were:

  • Average Directional Movement Index (ADX)
  • Commodity Channel Index (CCI)
  • Channel Break-Outs (NH/NL)
  • Moving Averages (MA)
  • Moving Average Crossover (MAXO)
  • Moving Average Convergence Divergence (MACD)
  • Momentum (Mo)
  • Rate of Change (RoC)
  • Linear Regression
  • Chaiken Money Flow (CMF)

Check it out – the data may surprise you!

Backtesting Engine Definition

TradeStation Backtesting Engine Test Channel Trading
TradeStation Backtesting Engine At Work

The Backtesting Engine is the core software doing the backtest. 

It takes as inputs the historical price data and trading strategies.

The backtesting engine applies the trading strategies to the historical price data to get a series of hypothetical trades and records the results.

The outputs of the backtesting engine are typically performance statistics.    I have added instrumentation to gather additional information about each trade for later analysis.

Many backtesting engines are available commerically.    Well-known platforms include TradeStation, Worden Blocks BackScanner, WeathLab, Amibroker.    Many brokers such as TD Ameritrade offer backtesting engines for their customers.

In spite of the wide availability of software, many traders don’t backtest because of the huge amount of work it takes.    Reading a Backtesting Report is much easier.  🙂

Last updated 11/11/08.