Before you use a trading strategy, be it an options trading strategy or otherwise, to work, it is important to test it. The fundamental ways to evaluate options trading strategies include backtesting and forward testing.
Backtesting trading strategies refers to testing your strategy using historical data sets.
Forward testing refers to evaluating your trading strategy using simulated environments.
As a trader, testing your options trading strategy is of utmost importance, as it will not only help you avoid huge losses but also help you trade stress-free.
With backtesting, you can understand how viable your trading strategy is without the need to risk your money. Yes! It’s basically testing how good your trading strategy is when tested with real market data.
You can test both – simple and complex options trading strategies requiring multiple parameters and inputs with backtesting using options backtesting software on an algorithmic trading platform.
The analysis that you get from backtesting can help you optimize your trading strategy.
Here’s how you can perform these backtest options strategy with ease on PHI 1:
Step 1: Open the Option Leg Builder on PHI 1.
Step 2: Select the index or stock, expiry, and the strike price whose options you want to trade to create your desired strategy.
Step 3: You can save this strategy for future use as a template by clicking ‘save strategy.’ Read how you can create the straddle strategy with PHI 1 here.
Step 4: This strategy is saved.
Step 5: Select Create Options Backtest.
Step 6: Select strategy to backtest, select symbol or stock on which you want to backtest the strategy, select test parameters like expiry date, period, etc. and run the backtest.
Step 7: Voila! You can see the result on the next screen within a minute or two!
Step 8: You can check monthly trades, equity charts, and logs for your strategy
Kudos! You have successfully backtested the strategy created by you.
You can backtest any other options trading strategy in the same way.
Watch our webinar on “How to backtest your options trading strategy using PHI 1.”
In this webinar, you will learn to create popular options strategies like an iron corridor, straddle and strangle and deploy it too!
And hey! Before you watch the video, one more thing.
There’s a lot of automated trading tools available in the market which offer the backtesting option.
But, what if you could see payoff charts, Greeks, and more along with robust screening and deployment on a single automated trading platform?
That’s PHI 1 for you!
Avail of the free trial to experience trading automation in full throttle.