Backtesting with lookback lets you see how a strategy has performed historically or may perform in the future, including key metrics from the past decade such as the win rate, max loss, and profit per trade. In addition, you can tweak your strategies and management parameters to see how they might alter your trading approach.

• Analyze the performance of specific strategies on a selected underlying
• Adjust trade specifications, such as deltas, days until expiration, number of contracts, etc., to see what provides the best balance of risk and reward.
• Add management parameters, such as exiting at a specific day before expiration or setting a stop loss, to develop a deeper understanding into how to manage a portfolio.

Lookback Backtesting for Beginners

 1. Select Duration

Upon entering the symbol, you will be able to see the various expiration cycles populated in the “Chain” tab. Here you can select the duration you would like to backtest by looking at the “X DTE” in the parenthesis next to each of the expiration dates.

2.  Select Leg of Strategy

Upon choosing the duration, you can then select the legs of the strategy you want to backtest. The calls are on the left hand side of strike and the puts are on the right hand side. The outermost columns on either side are the delta values, and the inner columns are the bid and ask.

 3. Sell/Buy/Clear a Contract

If you would like to sell a contract, click the bid column. If you would like to buy a contract, click the ask column. If you would like to clear the contract you just selected, either click clear in the top right corner, or click the action opposite of what you selected. So if you chose to sell a put by clicking on the bid column, click on the ask column and it will remove the short contract.

 4. Choose Strategy

Choose any strategy you would like to test, and navigate over to the “Backtest” tab to continue. This will take you to the results page that shows you a variety of statistics about the strategy on this specific underlying. You can see win rate as a percentage, the total number of trades entered, the max loss, average premium collected per trade, the average profit per trade, average days in the trade, and average profit per day. 

5. Remove the Outliers

If you would like to remove the outliers, click the “Show Medians” button. By hovering over the chart, you can see how the strategy performed at different periods of time. If you would like to go back to the backtest page to change the contracts, click on the red button right above the y axis.

 6. Go Back to Backtest Page

If you would like to go back to the backtest page to change the contracts, click on the red button right above the y axis.

Intermediate Backtesting - Entering Trades Manually

 1. Choose Strategy

The other way to choose the strategy that you would like to backtest is by navigating to the “Backtest” tab after you enter in a symbol in the top bar. In the backtest tab, you can click on the red plus button at the bottom of the page to set up the strategy.

 2. Enter in Legs

Here you will be prompted to add each leg of the trade individually. If you would like to sell an option, enter in the quantity preceded by a minus sign. Next, click on the drop down to choose what contract you would like to trade. You can choose between a call, put, or the stock itself. Now, enter the whole number delta value of the contract, so if you want to sell a 30 delta contract, enter “30”. Last, enter in the days until expiration for the contract. After entering in all of the information, click “OK”.

That is for one leg of the trade, so if you are backtesting a multi-leg strategy, click on the plus button again to add more legs.

 3. Make Changes to Legs

After entering in the legs, take a look to make sure the contracts look correct. You should see plus or minus 1 in the contract column, indicating whether you are buying or selling the option. In the type column, you should see the contract type you are trading, followed by the delta values and DTE for each contract. If you would like to make changes to any of the legs, click on the pencil icon, and if you would like to remove a leg, click on the trash icon. Once you are ready to view results, click on the “Run Backtest” button at the bottom of the page.

Advanced Backtesting - Add Management Configurations

 1. Pull up Configuration Options

Let’s say you want to manage your trade at 21 DTE. Click on the settings wheel button on the bottom of the page, next to the plus sign.

 2. Mange at 21 DTE

This will pull up the configuration options, where you can choose whether you’d like to take profits early, set a stop loss, and/or exit at a specific DTE. To manage at 21 DTE, click on “Exit at DTE”, check the box, and enter in 21 on the line. Run the backtest again and you’ll see the changes in win rate and average days in trade.

 3. Change Stop Loss Percentage

Let’s say that the max loss is still too big for you, and you want to have a stop loss at 2x the credit received. We can set that up by navigating back to the backtest configuration page, clicking on stop loss, selecting “At % of debit/credit” and entering 200%. Click “OK” and run the backtest again. You can see that the max loss is significantly smaller and the average profit per trade is greater.

 4. Adjust All Settings

You might also notice the average days in trade increased, and this is because the configuration settings do not save when you go back to alter the backtest. So, each time you want to adjust one setting for the backtest, make sure you adjust all the settings to what you desire.