"How do I backtest SMB strategies?"
By Dave Mabe
Here's a question from Silvan P., who has seen some of my guest appearances on SMB Capital's Bionic Trader webinars with Garrett. (Name used with permission, lightly edited for clarity.)
Silvan P:
I have been listening to your podcast, and I am also a member at SMB Insider, where I have seen some of your videos. I am interested in backtesting some SMB style strategies, and I am wondering which setup I would need for this? Is it OK with Trade-Ideas as I am a user there already, or do I need Amibroker with Polygon/Massive, or do you suggest something else?
Dave:
Several MabeKit users do exactly this: get strategy ideas from SMB Insider, systematize and optimize them with the Strategy Cruncher, and then execute them with the Trade Client.
There are two main ways to generate the signals required to trade these strategies:
Trade-Ideas Alerts
Amibroker (fed by a Trade-Ideas Toplist or Alert window)
Generating signals from Trade-Ideas directly is the easiest workflow.
But you won't be able to generate signals from all strategies with Trade-Ideas.
For example, a strategy based on a candle pattern that doesn't already have an alert in Trade-Ideas.
In that case, you will need to generate the signal with Amibroker.
Before worrying about the real-time signal generation for these strategies, though, I would focus on backtesting them.
The best backtester for these is Amibroker, so that's where I would focus my attention.
Work on your process for creating a backtest for an idea, optimizing it, and getting it to the point where it can go live.
When you're looking at an equity curve that goes up and to the right, then that will provide all the motivation to figure out the best way to generate the signals in real-time to execute them.
So, start with Amibroker, build your database with data from Massive/Polygon, then get to backtesting.
And cross the real-time bridge when you get to it.
Great question, Silvan, thanks for sharing.
-Dave
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