Thanks to the latest technology enhancements, you can backtest your trading strategy to determine how it would have performed under various stock market scenarios. As a result, backtesting has become an essential tool in the arsenal of every portfolio manager who wants to be successful – for beginner traders, expert advisors and institutions.
The following guide summarizes the results from hours of research to give you the best backtesting software for analyzing trade ideas. It covers anything from free and paid solutions to backtesting software for beginners and complex and powerful trading strategy tester programs for the more demanding ones. Now, let’s find out which alternative will suit you best!
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Best Backtesting Software for Traders
- TrendSpider – Best for Beginners
- Trade Ideas – Best for Day Traders
- TradingView – Best for Free Backtesting
The backtesting platforms featured in this list are picked based on several key factors, including features and advanced capabilities, UI and UX, cost, suitability, and more. Let’s dive in:
1. TrendSpider
TrendSpider is the most convenient choice for beginner and intermediate investors. The software shines on the UI and capabilities equally.
TrendSpider’s users can rely on over 20 years of historical data on the daily time frame and extensive intraday data to feed into the backtested trading strategies. That way, the trader can guarantee the higher accuracy of his models and avoid trading strategies that would have underperformed when trading on real-time data.
In addition, the backtesting features are suitable for long and short strategies and can apply realistic trade-by rules to mimic the real-life trading experience fully.
The backtesting tool is chart-based (from 1-minute to monthly), meaning you can easily create technical buy and sell rules even without knowing how to write a single line of code. For example, you can combine different indicators, price action trading signals, portfolio chart patterns, volume and more to build custom trading strategies from scratch.
The fact that the backtesting features are 100%-based on a visual interface means TrendSpider is a great choice even for beginners.
The backtesting results are also presented in charts, making it easier to distinguish the top and bottom performers and additional crucial information like automated trendlines, win-rate, profitability, and drawdown. That way, the trader can quickly identify the trade ideas with enormous potential and where further tweaking might be needed.
The platform is web-based, and you won’t have to deal with any local installations. It’s also possible to trade automated trading strategies, if their API is used.
TrendSpider Black Friday Sale: 65% Off + Free Trial2. Trade Ideas
Considering that algorithmic trading software is becoming a dominant trend in financial markets, Trade Ideas is the perfect backtesting software to help you capitalize on its potential.
The Trade Ideas algo trading software provides fully automated backtesting features that allow you to go back in time and see how particular trade ideas would have fared under different scenarios of your trading strategies.
The backtesting functionality is called OddsMaker and is integrated as a separate module within the Trade-Ideas stock scanner. It is included in the Trade Ideas Premium subscription and can be purchased separately.
Currently, it is the best “event-based” backtesting of stock alerts available in the market. Combining the stock scanner and the backtesting software guarantees real-time market analysis and high-profit potential trade ideas identification. That way, the trader can see what would have happened if he had placed a trade when the opportunity first appeared.
The backtesting feature is very user-friendly and doesn’t require any scripting or programming skills.
The backtesting software solution can also be complemented by the integrated AI trading algorithms (is it the best artificial intelligence stock trading software?). Trade Ideas Pro generates entry and exit signals and allows for detailed information on the backtested performance for the particular trade.
The trader can even leave the software to do the trading autonomously based on pre-defined parameters via the brokerage API. What is more important, AI algorithms have consistently beaten the market over the years. Some algorithms run thousands of backtests per day to filter only the trading strategies with the highest win rate and apply those filters throughout the next trading day.
Trade Ideas Black Friday Sale: 25% Off with promo code DAYTRADEZ253. TradingView
TradingView enjoys close to 200 million monthly visits and, over time, has managed to establish itself as one of the most notable trading social communities worldwide.
Despite being free, TradingView grants access to advanced charting tools and screening features that can be applied on instruments traded on virtually all stock exchanges globally. Furthermore, TradingView offers a top backtesting software solution powered by global market access and various assets (stocks, foreign exchange, crypto, and more) and trading indicators.
The platform is packed with a selection of backtesting scripts and strategies. However, remember that while many of them are free, if you want access to sophisticated strategies, you need to purchase them.
Among the top benefits of TradingView’s backtesting solution is its intuitive design. The results reporting is excellent as you can see details like the profit performance of the strategy (net profit, drawdown, profitable trades), the number of trades executed, and more. For more intuitive visual reference, the trades are plotted on a chart.
If you intend to use TradingView for more advanced backtesting and technical analysis, it is advisable to opt-in for the Pro and Pro Plus plans. The reason is that they unlock a universe of charts, indicators, and trading signals, as well as unrivaled customer support quality and access to intraday real-time data on virtually all assets.
One of the best things about TradingView’s backtesting feature is that over 2,000,000 users continuously share ideas and trading strategies that you can use for free or buy. Furthermore, the fact that the whole community is united around the idea of working towards a more profitable trading performance means you can collectively raise your game.
TradingView Black Friday Sale: 70% Off + 1 Free Month4. TradeStation
TradeStation is known mainly for being a leading day trading brokerage house with commission-free trading. You can trade stocks, ETFs, futures contracts, options, cryptocurrencies, mutual funds, and more. However, what often flies under the radar is the number of advanced functionalities of its high-end TradeStation desktop platform.
The desktop platform has various features, including
- RadarScreen (continuous monitoring and ranking of over 1,000 financial instruments),
- EasyLanguage (proprietary beginner-friendly programming language for coding customized strategies),
- The Matrix (a detailed market depth window, a highly advanced order-entry tool, and a precise order-tracking system),
- TradingApp Store (choose from dozen built-in trading apps),
- OptionStation Pro (options analysis software),
- Simulated Trading Mode (a demo trading feature), and our primary point of interest
- Stock Trading App for iOS and Android
- And extensive backtesting functionalities.
You can backtest, optimize, and fully automate your trading plan across various stocks and futures instruments through TradeStation. In addition, the platform is filled with decades of historical market data, which means you can build well-informed models Manual backtesting is also possible, so you can check various performance metrics and trading strategy settings based on historical market data.
The combination of the simulated trading functionality and the backtesting features prove perfect prerequisites to build, test, and improve your trading strategy in real-time without putting capital at risk.
That way, you have the comfort to take all the time needed to build up your confidence and improve the performance of your strategy before applying it to the real world.
5. Interactive Brokers
As one of the top brokerage companies, Interactive Brokers shines with its good reputation and competitive rates. The company was one of the first to pioneer the discount brokerage business model, which earned it the trust of a big part of the market.
Interactive Brokers account holders can engage in stocks, bonds, ETFs, futures, options, mutual funds, and forex trading, virtually the whole investment universe.
The platform comes with an extensive set of over 30 advanced trading tools designed to satisfy the needs of all market participants. Interactive Brokers’ fundamental backtesting system is a part of the advanced Portfolio Builder functionality. As its name suggests, it gives traders everything they need to design an investment strategy and test its performance based on fundamental data, not technical analysis.
The Interactive Brokers portfolio building and backtesting features are backed by top-tier research and fundamentals data, including rankings from top buy-side providers, analysts, real-time data and news streaming, stock reports, and more.
The feature is very intuitive. As soon as you are satisfied with the strategy’s performance during the backtesting phase, you can place live trades with just a few clicks, thanks to the built-in direct market access.
While the platform is free to download and install, backtesting through the Portfolio Builder is available only to active IB users.
Considering that IB’s offering comes with an unrivaled collection of stock research and analysis data entirely for free, it automatically becomes one of the top choices to consider.
6. NinjaTrader
NinjaTrader is a trade simulation platform with advanced charting, and backtesting functionalities based on the C# programming language.
The platform focuses primarily on futures trading and is a great way to prepare for the live markets with simulated trading experience and professional market data.
In terms of functionalities, NinjaTrader is among the best solutions in the industry. The platform’s users can take advantage of an extensive collection of historical feeds, advanced charts and technical analysis features, hundreds of indicators, and thousands of third-party apps and add-ons for further customization.
The team behind the platform has ensured unlimited support and a continuous supply of investment advice and daily training webinars. You’ll learn about various trading methods, including forex strategies and futures trading tips and tricks.
The built-in simulated trading mode is another integral ingredient in building a well-performing trading strategy on Ninja Trader. The combination of the simulation features and the backtesting capabilities gives you access to a high-performance engine that allows you to address all weak points on the training ground entirely for free.
The platform is enjoyed by both – beginner and advanced futures traders. If you decide to go with it, you simply won’t be disappointed.
The downside is that connecting a brokerage account requires a paid NinjaTrader license.
7. MetaStock
MetaStock is an independent, broker-agnostic platform that does a great job in combining advanced scanning, backtesting, and forecasting features.
The platform allows you to backtest your strategies on a single instrument and entire markets. It also brings the opportunity to choose from ready-made backtesting scenarios or even develop and test your own sophisticated trading systems. But don’t get too excited. The truth is, if you want to design complex backtesting models, you will need some basic coding skills.
Traders also enjoy MetaStock because it visualizes the backtesting results in an easy-to-comprehend way. The platform generates lists of the buy or sell trading signals and allows you to deep-dive into each of them. This way, you can explore additional details like the size of the trade, its duration, PnL, and more.
Another feature that many traders choose MetaStock for is the forecasting tool. Blending statistics and mathematics plots an easy-to-read probability cloud that helps you set profit targets and stops more precisely. Together with the backtesting feature, they can prove the optimal solution to capitalize on reactive and proactive data.
MetaStock’s interface is beginner-friendly, although it won’t be harsh if we say that it is highly legacy-looking. However, if you are firm on the aesthetics of the software you use, there simply is much better backtesting software.
8. Quantpedia
Quantpedia is an encyclopedia of quantitative and algorithmic trading strategies. The team behind Quantpedia turns academic research into a real algorithmic trading advantage. They already identified 600+ trading systems by reading tens of thousands of financial research papers and turning those learnings into ideas for trading strategies.
The available trading strategies range from trend following and market timing strategies to stock picking and asset allocation models for equities, bonds, forex and commodities.
Using Quantpedia is best for retail traders and institutional investors looking for a shortcut. Instead of spending hours downloading, sampling and testing data, you directly access the best strategies that great minds came up with – well researched, tested, quantified, and well documented.
Benefits for subscribers:
- Access to premium trading ideas with performance graphs, links to academic papers, and strategy description
- 400+ out-of-sample backtests with statistics and equity curves
- Advanced charts and unrestricted strategy screener access
Quantpedia premium costs $349 for 3 months, $499 for 12 months, or $999 for 36 months.
9. EOD Historical Data
EOD Historical Data is the go-to place for market data downloads and backtesting purposes via Microsoft Excel. 700,000,000+ financial data points are available right now. They provide 30+ years of data and 20+ years of fundamental data, including 70+ stock exchanges, cryptocurrencies, and forex pairs. ETFs, bonds, and mutual funds are also supported.
Data for:
- 150,000 Ticker symbols
- 20,000+ Exchange traded Funds
- 600+ Indices
- 1,100+ Forex Pairs
Most of their data comes from Nasdaq Basic API and 14 other data sources.
The most expensive package is only $49.99 per month and comes with 100,000 API requests per day, the entire EOD data, fundamental data, bonds datasets, options data, splits and dividends information. This package gives subscribers access to all data.
For $19.99 per month, you can access 60+ stock exchanges, indexes, and forex pairs with 100,000 API requests per day. In addition, students save another 50% if they contact support before making a purchase.
EODHD offers an awesome knowledge base with clearly structured documentation on how to use the API.
10. Microsoft Excel
Excel is capable of backtesting as well. It was the first widely spread program that traders globally used to build their automated trade execution models.
Building a backtesting function in Excel requires basic knowledge in VBA. For example, if you want to do some beginner-level stock or forex backtesting, then a set of Excel formulas will also do the job. Fortunately, there are thousands of tutorials on how to perform backtesting in Excel, which is why if you are determined to use it, you have all the means to master it.
Furthermore, some brokers like Interactive Brokers even allow you to integrate an Excel-based trading system. The process is straightforward and happens through the installation of the IB Excel API.
On the downside, Excel isn’t as powerful as platforms, explicitly designed for backtesting and automated execution. It is understandable, considering that this isn’t its primary goal.
Considering the minor limitations of the program and the time needed to get it up and running as a stock backtesting software (i.e., building a backtesting function from scratch), if you lack the required skills, I can conclude that Excel might not be among the most convinient tools for backtesting and definitely not the most efficient option out there. However, if you want a taste of some old-school trading analysis, this is the one to go with.
Best Backtesting Software Summary
The best backtesting software for beginners is TrendSpider, followed by Trade Ideas as the best backtest engine for day traders and TradingView in the best free backtesting software category.
Backtesting is fundamental for one’s successful trading performance. A while back, it was an exercise reserved only for a selected group of professionals and expensive. Today it is accessible even to beginner investors and traders at low costs. Moreover, thanks to the technological revolution, all types of backtesting software solutions can satisfy even the most sophisticated demands.
The choice of which one to go with depends on various factors, including your experience, trading goals and goals, budget, requirements from the platform, and more.
Those without an active broker account can choose TradeStation’s great offering. Math geeks and traders with programming skills, on the other hand, will lean towards MATLAB. Individuals with a limited budget can take advantage of TradingView. Futures traders will opt for Ninja Traders.
Finally, day traders in search of a ready-made backtesting software solution will find TradeIdeas a great choice.
In the end, it all depends on your preferences, and the best way to find out which one will satisfy them is from first-hand experience.
See also: Best Stock Analysis Software
Backtesting Guide
Backtesting is a popular method for ex-post examination of the performance of a trading strategy. Alternatively, it helps you determine how your current strategy would have performed under particular market developments in the past. The results serve as a likely indication of the potential future performance of one trading strategy, or multiple trading strategies.
Backtesting models are fed with historical data and are powered by automated algorithms that run several iterations (usually in the hundreds or thousands) before presenting the results. Once the backtest is completed, the software shows the results with insights into the profitability level.
The results usually include various parameters that can help you compare the different strategies, including the number of executed trades, trade duration, win/loss ratio, drawdown, and more.
Backtesting for traders is what training is for athletes. Without it, they have no basis to believe they will perform when entering the actual competition like live trading.
Why is Backtesting Important?
Performing backtest is crucial as it helps fine-tune your strategy by trying out different risk management techniques and profitability scenarios to find out the most balanced strategy. You gain valuable insights about your trading strategy, their performance relative to the market conditions, and you have access to historical market data, which helps finding even more trading strategies.
Furthermore, it helps you identify the weak points in your trading model. That way, you can address them on the training ground and examine the strategy’s viability without risking any capital.
Using backtesting is beneficial to gain a trading edge. Tools like the ones mentioned above help traders make well-informed decisions based on facts rather than on gut feeling.
Usually, if the backtested strategy shows promising results, traders and analysts gain the confidence that it is fundamentally sound and might be a viable choice to go with. On the other hand, strategies that fail to deliver during backtests will prompt their authors to redesign or scrap them altogether.
If done right by:
- Testing potential trading strategies on different time frames and data sets,
- Taking into account trading costs and commissions,
- Avoiding data overfitting of the model; avoiding built-in bias),
backtesting can prove a powerful weapon that can significantly improve your trading performance.
The best backtesting software is the one integrated in an comprehensive trading platform, in the best case, your broker. Unfortunately, broker solutions only have limited access to backtest data, or technical analysis tools with backtesting capabilities. That’s why many traders decide to pay for a backtesting software with integrated trading strategy testing capabilities.
Drawbacks of Backtesting
Many traders put blind faith in the backtesting results, thinking that if their model has achieved an 80% winning ratio during the backtest, it will replicate it with real-time market data.
The truth is that the whole idea of backtesting is based on the concept that past performance is relevant for the future.
While the cyclical nature of markets means there is sound reasoning behind this theory, the number of unpredictable events in markets is continuously growing. This means relying on backward-looking data might only be partially successful. However, without complementing it with forward-looking technical indicators and trading tools, you will significantly limit your chances for success.
While all trading ideas can be backtested step by step, building one from scratch can be a daunting and resourceful task. Due to this, most retail traders stick to backtesting software solutions like those in the list.
Also, you should know that there is no ideal backtesting scenario. You simply can’t control everything (i.e., black swan events) and expecting 100% accuracy and identical results from your model during backtesting and live trading is usually a recipe for failure.
KPI Examples
KPIs are metrics to measure a trading strategy. They give you a complete view of your strategy so you can make data driven decisions on how to optimize and implement it. Here are some of the most common KPIs:
- Profit Factor: This is the ratio of gross profit to gross loss. A profit factor > 1 means profitable strategy.
- Sharpe Ratio: This measures the risk adjusted return of a strategy. Higher Sharpe ratio means better risk adjusted performance.
- Drawdown: This is the peak to trough decline of a trading account. Lower drawdowns are better as they mean less risk.
- Win Rate: This is the percentage of winning trades out of total trades. Higher win rate means better strategy.
- Average Trade Duration: This is the average time a trade is held. It helps you understand the trading style and frequency of the strategy.
FAQ
Why should I back test a trading strategy?
You should backtest a trading strategy to validate its efficiency. Backtesting (based on actual historical data) can be combined with forward testing and trading simulations (hypothetical data). Backtesting helps you identify the strengths and weaknesses in your trading plan.
What is the best way to backtest?
First, you define the exact parameters of a trading strategy. Then you insert the data into the backtesting platform to test it based on the original parameters. Now you run the system and analyze the results. Finally, you optimize the results by adjusting parameters like stop-loss variables and order types.
Is it a good idea to backtest forex trading strategies?
Yes. It is a good idea to backtest forex trading strategies to ensure their overall efficiency. Keep in mind, though, that trade executions in currencies can vary among forex liquidity providers. That means that other than trading stocks, futures, or options on a regulated exchange, your trade executions as a forex trader will depend a lot on the broker used.
Does algorithmic trading require advanced charting tools?
No, algorithmic trading does not require advanced charting tools because an automated trading system does not need any manual technical analysis when the system trades. Once you’ve backtested your investment strategies, you can automatically trade them with the algos. Still, for monitoring purposes and visual confirmation, you might feel comfortable with charts.
