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Thinkback Backtesting Explained | ThinkorSwim

Education

Introduction

Welcome back to the channel! In today's video, we will be diving into the ThinkBack tab on the ThinkorSwim platform. The ThinkBack tab allows you to manually backtest your trades and quickly see how they would have played out over time. Let's explore how to use this feature effectively.

Accessing the ThinkBack Tab

To access the ThinkBack tab, simply go to the Analyze page on ThinkorSwim. You will find it as one of the sub-tabs. Click on it, and once the page opens up, you will see that it is divided into three sections.

  1. Trade Screen: This is where you can build out your hypothetical trades.
  2. Trade List: Below the trade screen, you can view and manage the trades you are analyzing. You can delete or edit them as needed.
  3. Graph: The graph section displays the historical price of the stock and allows you to visualize the potential profit and loss of your trades over time.

Downsides of the ThinkBack Tab

Before we dive into how to use the ThinkBack tab, let's quickly discuss some of its downsides.

  1. Inability to Jump to Specific Times: Unlike the On Demand feature, you cannot jump to specific times of the day using the ThinkBack tab. It shows the closing value of the stock on the selected date.
  2. Manual Backtesting: Backtesting using the ThinkBack tab is a manual process. If you want to automatically backtest a specific strategy, you would need to learn how to think script or explore other options.

Now that we have covered the downsides, let's move on to how to use the ThinkBack tab effectively.

Using the ThinkBack Tab

To analyze a specific stock, type in the stock symbol in the top left corner of the ThinkBack tab. For example, let's consider Facebook (FB) for this demonstration.

To create a hypothetical trade, click on the ask price to buy or the bid price to sell. For individual stock trades, right-click on the last traded price and select the desired action.

Once you have selected a trade, an order ticket will appear in the trade list section below. Here, you can modify the trade price and quantity. The chart in the graph section will display the potential profit and loss of the trade over time.

To change the date and analyze trades on different days, use the calendar icon in the upper right corner. Please note that the default view shows the closing value of the stock and options for the selected day.

Now, let's dive into an example backtest using Facebook:

  • Date: January 15, 2021
  • Strategy: Buy an at-the-money option that expires in 30 days when RSI is oversold and there is a MACD crossover.

Analyzing the chart and options chain, we find that an at-the-money call with a strike price of $ 252.50 was priced at $ 12.47 on January 15th. After examining the P&L graph, we observe that the best time to sell this contract would have been on January 26th, earning a profit of $ 1,982.50.

Let's explore another example using Biogen (BIIB):

  • Date: January 15, 2021
  • Strategy: Buy an at-the-money straddle with a 28-day expiration.

After analyzing the trade, we observe that the initial trade quickly went against us. Holding the position until expiration would have resulted in a loss of $ 3,642 out of a potential loss of around $ 3,890.

Additionally, we can explore short option strategies. Let's consider selling a put spread on Biogen:

  • Date: January 15, 2021
  • Strategy: Sell a 30 delta put spread with a 35-day expiration.

Examining the P&L graph, we see that this trade would have been highly profitable, reaching maximum profit on the expiration date, February 19th.

Keywords

ThinkBack tab, backtesting, hypothetical trades, stock analysis, option chain, manual testing, think scripting, profit and loss, RSI, MACD, at-the-money option, straddle, put spread, expiration date, P&L graph.

FAQ

  • Can I jump to specific times of the day using the ThinkBack tab? No, the ThinkBack tab only displays the closing value of the stock on the selected date. It does not allow for jumping to specific times of the day.

  • Can I automate the backtesting process on ThinkorSwim? While the ThinkBack tab is a manual testing process, it is possible to automate backtesting by using think scripting. By learning how to think script, you can develop automated strategies and generate reports based on selected indicators and conditions.

  • Can I backtest multiple trades at once using the ThinkBack tab? No, the ThinkBack tab only allows for the manual backtesting of trades one at a time.

  • How can I view the profit and loss of a trade over time? The ThinkBack tab provides a graph that displays the historical price of the stock and the potential profit and loss of a trade over time. This allows you to visualize the performance of your trades.

  • Is backtesting using the ThinkBack tab accurate? Backtesting using the ThinkBack tab provides an approximation of how your trades would have performed based on historical data. However, please note that past performance does not guarantee future results, and market conditions can vary.

If you have any additional questions or suggestions for future videos, please leave them in the comments below. Happy trading, and I'll see you in the next video!

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