[Tams]

I have a question on backtesting. The strategy I currently want to test exits upon hitting a profit target. In addition, as is often the case, there is a stop loss exit.

My question is how do you go about doing a backtest of something like that? The problem I have is that if I use daily bars, I could easily have a situation where both the PT and the SL are hit, within the same bar. How do I figure out which one gets hit first?

The only solution I can think of is to use shorter bars, like hourly.

I assume that is the standard way to proceed, or is there some obvious alternative that I'm missing here?

Someone sent me the above question, I thought I should post the answer here for the benefit of all.


MultiCharts has a feature called "Bar-Magnifier".
TradeStation calls it Look-Inside-Bar-Backtesting (LIBB).

MultiCharts/TradeStation lets you add a second data stream for backtesting.
For example if your strategy is to work on a daily chart. You can add a finer resolution 2nd data stream (eg 5min) to the backtesting, thus allowing the program to calculate your strategy rules and fill orders at intrabar prices, as if in real life trading.

[diablo272]

TS backtesting functionality is better that Ninja backtesting apparently.

[Tams]

Some programs would use an algorithm to mimic intra-bar price fluctuation, you can get intra-bar order fill, but the price is simulated.
(ie. somewhere in between the high of the bar and the low of the bar.)

[diablo272]

To be honest, I'm not 100% sure of the intricacies of Ninja backtesting (because I don't use it anymore), but from what I remember, it will give you a fill at the close of each bar, regardless of the timeframe, and there were no settings to adjust this. I could very well be wrong about that, but I'm quite sure that there is some aspect of Ninja's backtesting that made it useless for me, or at least very cumbersome to use.