Back Test Your Stock Trading Strategy & System

August 26th, 2014

You need to back test your system and your strategy to see if you would be profitable in the stock market. I think it is critical for you to test your system and your strategy before you enter any real trades. Especially if you are brand new...

You need to make sure that you understand the panel, you understand how the stock is trading and moving, what it all means when you are looking at the quote window.

Once you have those things in place just put on a few system testing trades. The reason for this is to see if you would be profitable or not. If you are not profitable with a fake system one that you can get in and out of any time with no pressure and no emotions than it makes it much more difficult to be profitable with real money.

It does not mean that when real money is on the table you are going to be much better, it just means that things are a little more emotional and a little more difficult. So having a system that you have tested and proven over time will give you more confidence to ensure that it is working.

Testing a system

There are many different ways to test a system, one of my favorite ways it to just take a regular notebook, write down how many shares you have, write down how many shares you would purchase on a certain date, what your commission rate would be, what the quote of the stock is and the stock you are purchasing, and just watch it. You should watch it for multiple weeks, months, or years.

It really may take two or three years for you to test your system out and I know that sounds like a long time but when you take into context the 60 years of life, two or three years to test a system out if it works, than it is worth it because then for the next 50 years of your life you can use that system because things very rarely change that much in the stop market. You just have to make sure you have a timeless system.

If you do not want to take the notebook approach I have created a trading workbook it’s called “My Trading Journal: Your workbook to tracking and managing your stock trades” and it is available on Amazon. It is about 200 pages of a lot of different worksheets where you just fill in your trades and you can go and see your win ratio, commission, largest win, largest loss, average win so it just gives you a nice little set up so for a few bucks you can get this journal and enter your trades.


The journal does come in different colors, you can get green, blue, pink, or black. If you want to go a little more sophisticated you can get the journal but the notebook works just great.

Why write it down?

I like writing my trades down, I think writing them down is much better than digitally entering them just because I think the human nature to write things down allows a person to soak things up a lot better than just typing them because there is more of an emotion to connect whether you win or lose so to me writing these trades down is a lot better and you are able to digest things. You are able to see where you have made mistakes. Of course you can attach charts to these, you can attach a lot of different things to the notebooks and it is just another way of tracking the trades.


Digital testing

If you are thinking you want to back test your system a little more digitally one of the ways to do that is by getting an app or registering to a stock market game online and you can do that by searching Google for stock market game or play money for the stock market. They have a lot of games on there and also your mobile devices have a lot of stock market games out there so they give you fake money or what is called “paper money” and you are able to manage your trades, your portfolio and execute your trades.

One of the great things about this is that you can digitally just make changes as you are sitting at the office or maybe you're at the store or getting your oil changed, you are able to adjust your portfolio if you want to buy shares, if you want to sell shares, you can make adjustments. Then it tracks it for you automatically and you get to see your profit and loss and see if your system is working.

So those are a few ways that you can look at your system, you can test your system and see if it works. It may take multiple months or multiple years to really see if it works but as I said earlier if you look at the long term perspective, than the two or three years that you spend testing your system out of the 50 to 60 years of your life really is not that bad as long as you have a profitable system.

If your system works, great use it and move to real money and start trading lightly. If your system does not work than try a new system, you might test multiple systems at the same time and that is just a good way to see which system works better than others.

An issue with systems that you should understand it that once you start placing real money and real trades on the table it may actually shift the market slightly. If you are trading 100 shares, 500 share, 1000 shares on a highly liquid stock like Bank Of America than it may not move it that much but realistically placing a 200,000 share order, 10 million share order in one single day on any given stock would really move that stock quite a bit. So you need to take this into account so as you start moving to real money if you are trading lightly that won’t shift the market and it won’t really have a huge effect, but if you are trading a couple thousand shares on a stock that only trades five or ten thousand shares a day than it will shift that stock so your system may not work as great as you anticipated it would on paper.

So make sure you take these things in to account and understand what is going on in the market because it does come down to your actions as well influencing the market or the stocks direction.

Final Thoughts

Always test a system before you implement it with real money. This is just a way to save a little bit more in the bank and avoid losing money to quickly. So take this into account, get a stock market game, play it, and if it works, implement it, use it to your advantage, and make a living from it.

Author: Sasha Evdakov

Sasha is the creator of the Tradersfly and Rise2Learn. He focuses on high-level education speaking at events, writing books, and publishing video courses on business development, internet marketing, finance, and personal growth.

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

Join over 31,258 regular people who are bettering themselves in the stock market.

Click Here to Sign Up!

This is a community that is motivated to learn & improve their skills.
Join us and get free training lessons, freebies, and exclusive promotions.

want some helpful advice?

pay per minute coaching

I am scheduling helpful coaching sessions for people who are interested in real-world advice & guidance where you only pay per session. No long term commitment required.

Learn more
This website and content is for information purposes only as Rise2Learn, TradersFly, and Sasha Evdakov are NOT registered as a securities broker-dealer nor an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Rise2Learn, TradersFly, and Sasha Evdakov cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Rise2Learn, TradersFly, and Sasha Evdakov in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Rise2Learn, TradersFly, and Sasha Evdakov accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.