How accurate are methods such as back testing?

The economics of stock markets are quite different from anything; there is not a single predictive algorithm or solution which can tell you exactly how the movement is going to turn out. Put simply there are way too many moving pieces for anyone to accurately judge the exact movement of the stocks and their prices.

Despite all of these factors and issues, there are still attempts made by people to predict and see the course of the stock’s prices. A lot of these tools can be surprisingly accurate and one such method or tool is backtesting.

What is backtesting and what exactly does it require?

When you want to know how a certain company might perform in the future, you are looking for tools which will help you grasp how the movement is likely to be and how you can prepare yourself for the movement. One very important tool is backtesting, which basically uses a previously used trading strategy or historical data to see if the current strategy in place would have panned out for previous reports and movements. Sounds complex? Here is a simpler explanation.

There are several new models in place today, ones which can help you put yourself in a position to invest or divest from a company. All of these models and strategies are all put in place after they have been tested and they have yielded results. So what better way to test out a new plan or strategy, than by implementing it onto previous results and reports.

Backtesting uses software to help check if a current strategy might have worked on a previous result. It puts in to place the said strategy and is useful in analysing if the current numbers would have worked just as well on previous results.

Nearly any number or method can be backtested. The best part is that any investor or any individual can easily backtest their methods for the company’s returns. Other important metrics such as net income, degree of volatility of stocks, ratios or even percentage of return can also be as easily tested. All of these are done through advanced software which completes the testing in a matter of minutes.

What are the advantages of backtesting?

It offers analysts, traders and even investors to find a way to evaluate and optimise their trading strategies and analytical models before they get implemented. The basis of using this method is that, if a strategy worked poorly in the past, it is likely to work as poorly in the future; and vice versa. The biggest risk that comes with backtesting is that if it worked in the past, it should also work in the future.

You should definitely not place all your chips in that and instead just focus on making the right moves along with the strategy to get the right returns. The key with investing is being shrewd and protecting your assets along with spotting opportunities, with the help of tools such as backtesting, you can surely do that.

Earning screener is one of the most important tool in the field of stocks earning since it lists and gives an estimate of the trends in stock marketing scenario over few last years .