We have launched a new algorithm a few weeks ago for the screener so that daily results are displayed in the graph even when non-daily rebalance frequency is selected. Thanks to martinfierro we identified a flaw and we hope it has been corrected. This flaw was not present in the previous version.
The new algorithm will allow us for future enhancements to screen backtesting since it has some inherent problems vs portfolio simulations (from the Simulation tab).
The main drawback to screen backtesting is that there are no sell rules. A sell is simply done if a stock fails the rules. This is far from ideal… in the real-world sell decisions are normally different from what got you in the stock in the first place.
However that’s how screen backtesting works. There are no plans to add separate sell rules since that’s what the simulation tool is for. However there are several enhancements that are possible within the screener backtest. The new algorithm will allow us to implement some of these.
Here’s the text from another thread to explain the major issue with screen backtesting. Please refer to the previous thread started by martinfierro to read more about the flaw that was fixed.
This re-write has revealed a major problem with screen backtests that was always present. The way it works is that at every rebalance period the weights of each position are set to equal. This is not real-world. For example if you buy the stocks of a screen you will most likely not set the weights back to equal the following week. You will incur in too many transaction costs to do that. The cost of bringing the positions to equal weight that were present from the previous rebalance, is assumed to be zero.
The problem is even greater with daily rebalances, since all weights are made equal each day.
It is however standard practice with screen backtests, and should be a good enough approximation. Even if the cost of bringing the positions to equal weight is assumed to be 0, the performance most likely reports an under-performance with real-life since it is a good rule of thumb to let your winners run. It is also important to note that rebalancing all positions to equal weight is actually possible nowadays with brokers like foliofn with very little cost.
Having said this, we want to be better than that. What is needed is a way for you to specify what to do with stocks that greatly over/under perform between rebalances: do you want to maintain the weight? Should some profit-taking take place? etc.
Maybe simply adding a flag to not rebalance to equal weights and adding profittaking rules might be enough.
The new algorithm will allow us this future capability once we’ve defined exactly what the options are.
We look forward to your suggestions.