Back Testing Software

When I first started this site I decided not to have ads or do endorsements. I plan to continue with that position. Consequently if I say that I use this product or that product and that I might like them a lot it does not constitute an endorsement. Nor do I receive any compensation from any site that you might go to on my recommendation - nor do I wish to receive compensation for same.

So saying - I use a subscription version of stockfetcher.com for filtering and back testing. I highly recommend them for filtering purposes because you can use one of the many dozens of technical indicator based pre-built filters, modify any of the pre-builts to your own desires or develop brand new filters to do just about anything you might want them to. For example most of the pre-builts have a price consideration of 5 to 250. Maybe you want to concentrate on stocks between 15 and 25 - you can easily change the criteria to match your desires.

I'm currently playing with a filter where an exponential moving average crosses a simple moving average. You just can't get that kind of flexibility on most filtering sites (although I'm sure that I haven't tried them all).

Stockfetcher.com also has a back testing capability that permits you to run a back test using your filters for any period that you select. This is important because you can test your filters both for strong trending markets and weak falling markets (or down trending markets). If you do something like this (and I do often) you will be very surprised how a "can't miss" filter misses quite frequently simply because of market conditions.

Here is a recent example of the kinds of things you can gain from filtering with a technical bent. Readers of the site know that I like the exponential moving averages because they are far more sensitive to stock movements than are the simple moving averages. In fact a couple of weekends ago I did a cross comparison between the EMA 90 and the EMA 200 with good results for both but the 90 won the match. (At least in my mind anyway). Since then I have explored filtering with the EMA 90 for potential day trades and have been working on a particularly promising little filter. It is simply closing price is greater than EMA 21 and EMA 21 is less than EMA 90 - can't get much simpler than that. I use a price cutoff from 15 to 35 and volume doesn't much matter because I only take the four highest volume stocks out of the box.

On Friday those four happened to be BSX, FDC, RBAK and CVS. Watching the four during the day (using prophet.net - my favorite charting software) produced a super set-up on RBAK that looked like this -



Anyone could have taken this off the hammer in the third position to get a 60 cent gain in short time. I passed on this stock because I was working on something else at the time and I don't like having too many active at once.

(rant on) One other point - you can read every book on TA ever published and you will probably never see this method - that's the problem - everyone is using the old methods and no one is innovating. Thankfully we have software these days that allow those of us who are moderately creative to be able to test our ideas. That's what the quants at the hedge funds are doing - they are so beyond the simple moving averages that it isn't funny any longer. (rant off).

Again this is not an endorsement of stockfetcher, but it is a recommendation. I receive nothing from this so go try them out if you are interested in back testing or building truly technical indicator-based filters.