Backtest Methodology

Input Data

The backtest draws on our history of stocks in cup-with-handle (CwH) chart patterns back to December 2004. Although we have watchlist data back to April 2003, the pattern detection algorithm only became stable in late 2004. The data used in the backtest is:
Opening a Position

The back test begins on the start date you entered and then proceeds to evaluate potential buys on each day as follows:
Closing a Position

Each position in the portfolio is evaluated each day against the sale conditions you specified:
Daily Accounting

As the simulation proceeds day by day, the current portfolio value (shares and cash) is logged to the transaction log.


At the end of the simulation a comprehensive report is produced including charts and the transaction log.

Backtest Limitations

The backtest does not take account of broker commissions or slippages. While every effort has been made to ensure the backtest is a fair simulation of how trading would have occurred, it does not include discontinued symbols. Historical breakout prices and volumes have been adjusted for splits so these are consistent with the split adjusted OHLCV history. Consequently, the actual price at which a stock may have traded in the past is not necessarily reflected in the data but the percentage gain/loss on any particular trade will be substantially accurate.

The backtest results are strongly influenced by the sequence in which breakouts occurred. The exact sequence cannot be repeated in the future so future results will be different from the simulated results. The effect of this sequencing can be seen by varying the dates and length of the simulation. The effect of sequencing is most evident when choosing a position limit of one and least evident for a position limit of twenty.