Real money is at stake when buying stocks and options, so any poor choice could result in substantial losses.
Due to this vulnerability, traders employ purchasing and selling methods based on various standards and guidelines in line with the demands and objectives of the market. They experiment with various approaches before they enter the market.
Initially, traders test various trading methods on computers while viewing trade charts. Due to technological developments, many manufacturers have created backtesting software to test better trading techniques using previous data. The test results assist in modifying the trading approach to increase profits.
Different backtesting approaches, however, differ based on the level of trading expertise, the accessible system, the country, and other similar aspects.
Today, we also have advanced software that helps traders in options trading in order to secure substantial profits.
What is Backtesting?
Options backtesting is a terrific technique to determine how well your options trading strategy will function and ensure you use the best approach while trading with actual money to make intelligent choices.
Option and stock backtesting are like two sides of the same coin. The main difference between both of them is that option backtesting evaluates a specific set of standards for trading options.
You receive comprehensive data that includes completed trades, drawdown, risk-reward ratio, cumulative return, success %, and more.
What is a Backtesting Software?
A trading or investment strategy’s efficacy is tested using backtesting software, which also helps predict how well it will do in the future.
The recreation of a trading strategy utilizing past data from financial assets like options, shares, and more is based on the backtesting code in the software.
To do so, different market scenarios and datasets are used to test the model’s returns. To choose the trading strategy that performs the best based on historical information, investment banks and financial advisers adjust various trading strategy factors and assess the feasibility of trading methods.
Moreover, trading professionals can use backtesting software to obtain data on prospective net profit/loss, market exposure, fluctuation, risk-adjusted return, and return without putting any money at risk.
Let’s check out the 12 best options backtesting tools and software:
Nearly 200 million people visit TradingView each month, which has grown to become one of the most well-known global trading social networks.
TradingView offers several charting and screening functions that may be used on instruments traded on almost all worldwide stock exchanges, despite being free.
Further, TradingView provides an innovative backtesting software solution supported by worldwide market access and a variety of trading indicators and assets (stocks, foreign exchange, cryptocurrency, and more).
There are many different backtesting scripts and techniques available on the platform. However, remember that while many of them are free, you must pay for them if you want access to advanced techniques.
Its user-friendly layout is one of TradingView’s backtesting tool’s main advantages. The results reporting is fantastic.
It includes information on the strategy’s profitability, including net profit, drawdown, profitable trades, and more. The trades are displayed visually for easier visual reference on a chart.
Choosing the Pro and Pro Plus versions are advised if you intend to use TradingView for more sophisticated backtesting and trading analysis.
It is because they grant access to a vast array of charts, indicators, and trading signals in addition to providing unparalleled customer service and access to intraday real-time data on almost all assets.
Over 2,000,000 individuals regularly submit concepts and trading approaches that you can use for free or purchase, which is one of the best aspects of TradingView’s backtesting tool.
Additionally, you may jointly step up your game because the entire community is aligned to strive for better lucrative trading performance.
Trade Ideas is the ideal backtesting tool to help you take advantage of the potential of artificial intelligence since it is quickly becoming a dominant trend in the stock markets.
The stock analysis program has automated backtesting capabilities that let you examine past events to determine how specific trading ideas would have performed in various circumstances.
OddsMaker, a distinct module embedded within the Trade-Ideas stock scanner, is the name of the backtesting feature. It is available for separate purchase and is a part of the Trade Ideas Premium subscription.
It is now the market’s greatest “event-based” stock alert backtesting. Moreover, Real-time market analysis and the detection of high-profit prospective trading ideas are guaranteed when the stock analyzer and backtesting software are used together.
The trader can then visualize what would have happened if he had taken the chance when it initially presented itself. There are no scripting or programming requirements for the backtesting capability, which is incredibly user-friendly.
Integrated AI trading algorithms can be used as a supplement to the backtesting software solution.
Trade Ideas Pro provides entry and exit signals and comprehensive data on the trade’s backtested success.
Through the brokerage API, the trader can even allow the software to carry out the trading independently, depending on pre-set criteria. The fact that AI algorithms have regularly outperformed the market over time is more significant.
The world’s most liquid financial sector is the Forex market. Forex trading is unlike trading in any other financial market because it is also the most volatile.
If you trade forex, you need a back tester to demonstrate how your technique will perform in this volatile market.
The tool is specialized software for backtesting forex trades that will demonstrate how your technique will work when you trade currency pairs instead of stock market assets.
The results are simple to comprehend, which increases the effectiveness of identifying areas for improvement.
Furthermore, Forex Tester is a focused backtesting program that excels at what it does. Forex Tester is one of the most user-friendly solutions available right now, thanks to this committed focus on creating the greatest backtesting tool for forex trading.
For their base program, Forex Tester costs a one-time fee of $149. Unfortunately, the basic tester is only capable of so much. The company’s Super data plan, which costs $29.99 per month, works best when bundled with the program.
Another backtesting software program to consider is TrendSpider. It facilitates technical analysis with the help of charting and alerts. You can rely on significant intraday data and over 20 years of historical data for the daily time frame to feed into backtested techniques.
In this manner, you can ensure the greater accuracy of your models and steer clear of trading methods that would have done poorly while using real-time data.
Additionally, the backtesting tools can implement practical trade-by rules to replicate the experience of trading in the real world accurately and are appropriate for both long and short approaches.
As the software is chart-based (from 1-minute to yearly), you can simply develop technical buy and sell rules without knowing how to write a single line of code. So, for instance, if you want to create unique strategies from scratch, you can mix several indicators, price action trading signals, volume, portfolio chart patterns, and more.
The backtesting elements of TrendSpider are entirely centered on a visual interface, making it a fantastic option even for novices.
Charts are also used to display the backtesting results, making it simpler to identify top and bottom performers and other critical data like automatic trendlines, win-rate, profitability, and drawdown.
Therefore, you can quickly determine which trade ideas are the most promising and which ones might benefit from some additional fine-tuning.
For stocks, ETFs, forex, and cryptocurrencies, Tickeron’s backtesting is automated and features unique AI-powered chart pattern identification and prediction algorithms. When it comes to offering thematic model portfolios, precise pattern-based trading signals, success probabilities, and AI confidence levels, Tickeron excels.
Tickeron’s trading platform combines artificial intelligence with human intelligence based on the community of traders to compare how humans and machines think.
Moreover, it offers a complex array of features and advantages tailored to your investing style, focusing on day traders, swing traders, and investors. Tickeron generates trading suggestions based on pattern recognition using AI principles.
First, they use their pattern search engine to search the stock market for equities that fit specific price patterns from a library of technical analysis patterns.
Each discovered pattern, of course, has a history of success that has been backtested, and their Trend Prediction Engine takes this success into account when making predictions.
Advanced scanning, backtesting, and forecasting capabilities are combined by the independent, broker-neutral platform MetaStock expertly.
Using the platform, you can backtest your strategy on the entire market and a specific instrument. It also offers the chance to create and test your sophisticated trading methods, as well as choose from pre-made backtesting situations.
Don’t, however, get overexcited!
The fact is that you’ll need some fundamental coding knowledge if you want to create complex backtesting models.
Because MetaStock displays the backtesting data in a simple-to-understand manner, traders also appreciate it. You can dig deep into each of the program’s buy or sell trading signals.
By doing so, you can investigate further information such as the magnitude of the trade, its length, profit and loss, and more.
The forecasting tool is another feature that draws many traders to MetaStock. Combining statistics and mathematics results in a clear probability cloud that you can use to determine your stop-loss and profit targets more precisely.
When combined with the backtesting capability, they can demonstrate the ideal way to profit from reactive and proactive data.
MetaStock’s interface is straightforward, even though it wouldn’t be unfair to describe it as having a solid retro aesthetic. There is simply much better backtesting software available if you are rigid about the appearance of the program you use.
TradeStation is primarily recognized as a top-day trading brokerage firm that offers commission-free trading. Stocks, ETFs, futures agreements, options, cryptocurrencies, mutual funds, and more can all be traded.
On the other hand, the quantity of sophisticated features offered by its top-tier TradeStation desktop platform frequently goes unnoticed.
You can backtest, refine, and fully automate your trading strategy across a range of equities and futures assets through TradeStation. Additionally, the platform contains decades’ worth of historical market data, allowing you to create well-informed models.
To develop, test, and refine your trading strategy in real-time without putting your capital at risk, the combination of the backtesting capabilities and the simulated trading capability proves to be the ideal prerequisite.
By doing this, you may relax and take as much time as necessary to boost your self-assurance and enhance the effectiveness of your approach before implementing it in the actual world.
NinjaTrader is a system for trading simulation with sophisticated charting and backtesting features built on the C# programming language.
The platform, which primarily focuses on futures trading, is a fantastic method to be ready for the live markets with practice trading and expert market data.
NinjaTrader is among the best backtesting softwares available in the market in terms of functionality.
Users of the platform have access to a vast selection of historical feeds, sophisticated charting and analysis tools, hundreds of indicators, and thousands of third-party add-ons and apps for even more customization.
The platform’s creators have guaranteed limitless assistance, ongoing access to investing guidance, and regular training webinars.
A successful trading strategy on NinjaTrader can be constructed using the integrated simulation trading mode as well.
Moreover, you get access to a high-performance engine through the combination of the simulation elements and the backtesting capabilities, which enables you to completely fix all training ground weaknesses for free.
The platform is among the greatest backtesting software options available and is used by both novice and experienced futures traders. You won’t be let down if you choose to follow through.
The drawback is that a NinjaTrader license must be purchased to connect to a brokerage account.
Being the most widely used forex trading platform worldwide naturally increases responsibility to respect for the MetaTrader 5’s backtesting functionality.
It is safe to claim that it does not let you down, despite a few minor issues like the dated user interface.
Before going live, users can backtest and refine their trading strategies using the Metatrader Trading Strategy Tester capability. Additionally, the forex backtesting tool MetaTrader 5 enables the deployment of “Expert Advisors,” or trading robots.
For individuals involved in foreign exchange trading activities, the MetaTrader 5 Strategy Tester enables the testing of automated trading systems. The feature is capable of resolving complex mathematical and computational issues.
There are various testing modes where historical data feeds, parameter optimization models, and other tools can be used.
The output is elegantly represented visually using graphs, charts, and 3D models, much like those created by data analysis programs like R and Python.
Having said that, beginners seeking an intuitive forex backtesting tool may not find the Meta Trader 5 strategy testing capabilities to be the most practical option.
But that relies on your familiarity with coding. For novice traders, the platform’s immense strength and variety of advanced functions may be too overwhelming.
However, it’s undoubtedly one of the best options if you’re looking for a highly advanced historical backtesting system. The finest part is that MT5 enables algorithmic and automated execution, allowing you complete freedom.
Interactive Brokers stands out for its stellar reputation and affordable prices as one of the best brokerage firms.
A significant portion of the market trusted the company because it was one of the first to introduce the discount brokerage, business model.
Owners of Interactive Brokers accounts get access to almost the entire investment universe, including stocks, bonds, ETFs, futures, options, mutual funds, and FX trading.
The platform has a comprehensive collection of more than 30 cutting-edge trading tools developed to meet all market players’ demands.
The sophisticated Portfolio Builder tool includes Interactive Brokers’ basic backtesting mechanism.
It provides traders with everything they need to build an investing plan and evaluate its success based on fundamental information, not technical analysis, as its name would
Furthermore, top-notch research and fundamentals data, including rankings from leading buy-side suppliers, analysts, real-time data and news streaming, stock reports, and more, are used to support Interactive Brokers’ portfolio construction and backtesting tools.
Thanks to the integrated direct market access, you may execute live trades with only a few clicks as soon as you are pleased with the strategy’s performance during the backtesting phase.
Excel has backtesting capabilities as well. It was the first broadly utilized tool traders used to create models for automated trade execution.
Excel backtesting functions require a working grasp of VBA. For instance, a set of Excel formulas will work if you want to perform some beginner-level stock or currency backtesting.
Since Excel has thousands of lessons on how to perform backtesting, if you are determined to use it, you have all the tools necessary to become proficient.
Additionally, you may even incorporate an Excel-based trading system with some brokers, like Interactive Brokers. The IB Excel API must be installed to complete the simple process.
On the negative side, platforms specifically built for backtesting and automated execution are more powerful than Excel. Considering that this isn’t its primary objective, it makes sense. If you lack the fundamental abilities, Excel might not be among the best backtesting alternatives for you and is undoubtedly not the most effective option.
This is because of the project’s minor constraints and the time it takes to set it up and run as stock backtesting software. However, this is the one to choose if you want an experience with traditional trading analysis.
It is suggested for quantitative analysts who create robust automated systems and value access to a wide range of widely used user-generated ideas, but you must know how to code.
As the name implies, QuantShare specializes in enabling quantitative analysts to share stock systems. They have a sizable systems marketplace with tons of testable, usable material. You can put into practice and test an infinite number of options if you have a programming mind.
They also provide Point & Click system implementation. The AI Optimizer’s Artificial Intelligence integrations are fantastic since they let the system mix several rules to determine which ones complement one another the best. They also have strong neural network-based prediction models.
Backtesting is essential because it allows you to fine-tune your approach by experimenting with various risk management strategies and profitability scenarios to see which one is the best balanced.
Additionally, it aids in pinpointing your trading model’s flaws. In this manner, you can address problems in a training environment and test the strategy’s efficacy without investing any money.
Typically, traders and analysts develop confidence that the backtested strategy is fundamentally sound and might be a feasible option to go with if it produces positive outcomes.
Conversely, strategies that perform poorly during backtests will cause their creators to redesign or abandon them entirely.