MetaStock And TradeSim For Backtesting CFD Trading Systems: Why They Are Used?

MetaStock And TradeSim are pretty handy backtesting software for stock and CFD traders.

So if you trade CFDs online (contracts for difference) then pay attention.

For those that aren’t familiar with them, they’re used together to design and backtest stock or CFD trading systems.

They’re not the cheapest software around, but they do produce very good outputs in terms of reporting, and there are other advantages as well, which we’ll discuss here.

A lot of people ask about whether this or that software is better for backtesting trading systems with. For example, "Is MetaStock and TradeSim better than WealthLab?" is a pretty commonly asked question.

We’ll try to list their features here that may help traders decide which to go for and what software does or doesn’t do.

Firstly let me start off by saying that all software for backtesting is as good as the systems that are tested, how accurately commission and other transaction costs are entered by the tester, and how appropriately the settings for risk management and settings for taking pyramided or non level zero trades etc are set by the person.

This therefore depends on how much training you’ve had in learning how to design share or CFD trading systems. There are educational companies that teach people how to design successful share and CFD systems that actually work.

The output of share trading software also depend also on any particular bugs in the software itself that produces occasional inaccurate results.

And we also know that even if all these backtesting settings are set up accurately, there are limitations of backtesting itself, no matter which software you use, though these can sometimes be partially overcome by using the more flexible backtesting software like WealthLab.

Note firstly that Metastock is a charting package as well as a program where a trading system is coded, and a trade database (log of all trades generated by the system for a particular stock list) is generated.

TradeSim is the program where a system performance is tested and analysed when the trade database is tested with a particular trading float, trading preference settings, risk management rules and trading costs applied.

Secondly, past performance is never a guarantee of future perforamnce. So with all systems, the real test is how the system performs. So sensible money management is important to not lose your float and to be able to survive long term.

Let’s start with the advantages of Metastock:

The Metastock program is relatively easy to code. A person who does not know computer programming languages such as C (which often takes ages to learn) can learn to code a system into Metastock, but of course this means getting with some help and doing some practice.

If you’re learning on your own, it will take longer, but is achievable. But if you’re in a group of traders that use Metastock, or get help via a forum for example, you’ll pick it up much faster.

MetaStock is able to plot standard as well as custom indicators onto your charts. You code these custom indicators in.

Metastock is able to plot “expert advisors” to signal the bars that pass your entry conditions for example, so you can see which days your system triggers an entry into a stock or CFD. Again you code these signals in. This helps during manual checking of backtesting as well as when running a scan to see what stocks pass your system today.

MetaStock generates a trade database of trades that are level zero trades as well as non level zero trades, so that you can be in multiple positions on a single stock or CFD at the same time in TradeSim, if you wish to.

Metastock is relatively fast in its trade database generation.

The weaknesses of Metastock

Because the coding language is simpler compared to WealthLab, Metastock is more limited in the types of systems that you can code with ease. Having said this, Metastock is capable of coding many types of systems, but it is when extra complexity is required that it will be harder (but may be very tedious and require very complex code) to code with Metastock.

The key here is ease. If you need to code a complicated function such as crossing above or below the latest peaks and troughs, it may take someone months to figure out how to code this correctly in Metastock, whereas if you know how to use WealthLab, it will be much quicker. Having said this, knowing how to code WealthLab in itself is not simple. But if you have a programming background, it is much easier.

With Metastock, you can’t test a changing list of the stock exchange’s stock list. For example, if you want to test the top 100 stocks in a stock exchange, and you have a different list for every year, you won’t be able to generate a single trade database based on a dynamic or changing list of stocks or CFDs.

Even with these limitations, it is a pretty solid program and will be enough for many traders.

Again with all backtesting, it depends on whether you have coded the system correctly, whether the list of stocks tested against is representative and whether the costs (including estimation of slippage) is accurate, etc.

Check out it’s full features to make sure it can do what you need to do when designing and backtesting trading systems.