backtesting

Backtesting

Test trading strategies against historical OHLCV data to evaluate performance before risking real capital.

SMA Crossover Strategy

A trend-following strategy based on moving average crossovers.

Rules

• Entry (Golden Cross): Fast SMA crosses above Slow SMA (previous bar: Fast <= Slow, current bar: Fast > Slow)
• Exit (Death Cross): Fast SMA crosses below Slow SMA (previous bar: Fast >= Slow, current bar: Fast < Slow)
• Direction: Long only (buy on golden cross, sell on death cross)

Default Parameters

Parameter	Default	Description
Fast Period	10	Fast SMA lookback
Slow Period	30	Slow SMA lookback
Minimum Bars	500	Minimum OHLCV bars needed

How It Works

1. Compute SMA(fastPeriod) and SMA(slowPeriod) on close prices
2. Align arrays: offset = slowPeriod - fastPeriod
3. Walk through bars starting from slowPeriod:
   • If fast SMA crosses above slow SMA and no open position: BUY at close price
   • If fast SMA crosses below slow SMA and position is open: SELL at close price, record trade PnL
4. Calculate performance metrics on all completed trades

See references/strategies.md for full pseudocode.

RSI Mean-Reversion Strategy

A mean-reversion strategy that buys oversold conditions and sells overbought conditions.

Rules

• Entry: RSI crosses above the oversold level (previous bar: RSI <= oversold, current bar: RSI > oversold)
• Exit: RSI crosses above the overbought level (previous bar: RSI <= overbought, current bar: RSI > overbought)
• Direction: Long only

Default Parameters

Parameter	Default	Description
RSI Period	14	RSI calculation lookback
Oversold Level	30	Entry trigger level
Overbought Level	70	Exit trigger level

How It Works

1. Compute RSI(period) on close prices
2. Walk through RSI values starting from index 1:
   • If RSI crosses above oversold threshold and no open position: BUY at close price
   • If RSI crosses above overbought threshold and position is open: SELL at close price, record trade PnL
3. Calculate performance metrics on all completed trades

See references/strategies.md for full pseudocode.

Backtest Engine

Equity Calculation

Starting equity: $10,000

equity = 10000
For each completed trade:
  equity = equity * (1 + trade_pnl_pct / 100)
Total Return % = ((final_equity - 10000) / 10000) * 100

This models fully invested equity (each trade uses 100% of current equity).

Result Metrics

Every backtest produces these metrics:

Metric	Formula
Total Return %	((Final Equity - 10000) / 10000) * 100
Sharpe Ratio	Annualized mean return / annualized std dev (365-day)
Max Drawdown %	Maximum peak-to-trough decline in equity series
Win Rate %	Winning trades / total trades * 100
Profit Factor	Gross profit / gross loss
Total Trades	Count of completed round-trip trades

Plus the full trade list with entry/exit prices, times, and PnL for each trade.

Additional Strategy Configs

DCA (Dollar-Cost Averaging)

Parameter	Description
investmentPerTrade	Fixed USD amount per buy
frequency	Interval between buys (e.g., "daily", "weekly", "monthly")

DCA buys a fixed dollar amount at regular intervals regardless of price. Effective for reducing impact of volatility on average entry price.

Grid Trading

Parameter	Description
bottomPrice	Lower bound of the grid
topPrice	Upper bound of the grid
gridLevels	Number of grid lines between bottom and top
investmentAmount	Total capital allocated to the grid

Grid spacing: (topPrice - bottomPrice) / gridLevels

Each grid level has a buy order (when price drops to that level) and a sell order (at the next level up). Investment per level = investmentAmount / gridLevels.