What to Focus On When You Backtest!

You’re now aware of the benefits of backtesting and how Equities Lab uses software that avoids the typical biases that can skew data. The next thing to learn is the alternative strategies (not “Buy and Hold”) to investing!  These strategies encompass quantitative investing and use backtesting as the avenue to getting you the historical data to show the success/failures that will benefit you in the long run. 

Equities Lab’s Backtesting Approaches! 

There are four main investment strategy alternatives using backtesting that are unlike the “Buy and Hold” that Equities Lab focuses on. The reason that these particular strategies are utilized is because of the precision, data, and thought process behind them. The purpose is to look at the history, data, or timing of a stock and then how that will benefit the buyer. It isn’t about doing what is “easiest” by simply buying, but the more research you put behind a purchase, the “easier” it is to get the benefits of an investment’s positive performance. These are the following strategies to help:

1. Don’t sell, just buy: A strategy different from the “Buy and Hold” method because of the quantitative investment research. There is a bigger emphasis on the buying portion by using data and being intentional, and then, after the intentional purchase, you get to reap the long-term benefits.  
2. One stock at a time: This backtesting strategy focuses on one stock using specific criteria to analyze the timeline.
3. One time at a time: This backtesting strategy focuses on the periods before, during, and after the earnings report (or other events) to time the purchase of an investment. 
4. Event Studies: This strategy focuses on the impact of an event that will impact the price of stocks, an example being the presidential election. How will that change the value of certain stocks based on a particular campaign?

Takeaways

Using Equities Lab, you can evaluate the stock market with the approach that will show you the best time you should invest! Through the powerful software that can break a company down into individual years, events, or release dates, you can find the best stocks to invest in. Keep Equities Lab on your radar for the next read on a tutorial that will show you how to evaluate companies using the right context.