Is there a way to backtest the following strategy (kind of buy low, sell high)?

Question

I thought of the following strategy:

1. Choose some good ETF (doesn't really matter how I choose it for my question) - let's call it E.
2. While price of E is higher than 90% of its peak historical price (example: if peak is 100$ so enter this loop if price > 90$)
   2.1. Wait
3. Buy n units of E (now the price <= 90% of the peak). Let's mark the buy price at p.
4. While price of E < (1.05 * p)
   4.1. Wait
5. Sell E(now we have at least 5% profit).
6. Return to 2

I tried to look at some sites for backtesting it, but didn't find how.
Do you know any place where I can backtest this strategy?

Answer 1

'Backtesting' will likely not be meaningful to you given you seem quite new to investing. You are at risk of becoming overconfident that your simplified 'strategy' has value, and if the data you select to backtest looks good, that confidence could increase. But historical results do not indicate future performance.

"Buy Low and Sell High" is a great strategy - unfortunately it is retrospective. What is 'Low'? What is 'High'? These are relative terms. What happens in your strategy if a 5% gain is never reached? Such gains are not guaranteed. (Even 'Sell when it gains 1%' is not guaranteed, if you happen to buy at what is later known to be a peak).

I recommend you look into 'value investing', and consider simply contributing to your savings every paycheck, dumping funds into a diversified low-fee index fund, keeping enough savings in cash to pay for 3-6 months of your monthly expenses. Don't try to actively trade until at least you have more experience [and many people, even some who have some knowledge on the subject, decide to never actively trade].

Answer 2

You can test this in a crude way in Excel.

For more precise results, there are backtesting programs (such as Metastock) that you can purchase as well as online brokers that offer sophisticated tools as well (for example, TradeStation).

There are a number of issues with your strategy. In a volatile market you might get a number of successful trades. In a trending market, you might be out of the market for a long time and in a down market, you might be a bag holder for some time as well.

It's worthwhile to backtest simple strategies with the ultimate goal of finding a strategy that has some merit but that can take years to achieve and for some, perhaps never.