What a test on past prices is

How a test is run

1. The engine loads daily prices for each share, plus enough earlier history for the rule's averages to be ready on the first day.
2. Each trading day, the rule reads closing prices up to the previous trading day, and any trade fills at that day's close.
3. Every order pays trading costs, and stamp duty where it applies.
4. Dividends are paid in and reinvested, after the tax taken from them.
5. At the end, the rule's growth is set beside simply holding over the same days (what it is compared with).

Why the day before

Reading only what was known before each trade keeps hindsight out. A rule that could see a day's closing price before deciding to trade at it would look better than any real rule could.

Daily prices

Tests use one price a day: there are no prices from inside the day, so a rule cannot buy at noon. Stops and profit targets are orders at a price, so they are checked against each day's high and low.

What a test leaves out

• Only shares and funds that trade today are in the data. A company that failed, was taken over or was delisted is not in it. So a test that picks from a list of shares is flattered, by an amount the test cannot measure.
• Your own taxes beyond those the test states, and your broker's exact charges unless you chose that broker in the composer.
• The future. A test is one stretch of the past.

How long a test can be

Up to 20 years. A share that was listed more recently is tested from its first day of prices, and the result says so.