Methodology

Unless a strategy states otherwise, Backtested Strategies (BTS) uses the following standardized settings:

Data and definitions

Data: Norgate Data Platinum, end-of-day (EOD) daily bars (open, high, low, close, volume; OHLCV). A “trading day” is any session with an EOD bar for the instrument.

Adjustments and settings:

  • Date padding: none.
  • Adjusted OHLCV: capital reconstructions and special distributions (exclude ordinary cash dividends).
  • Ordinary cash dividends: added to portfolio cash on the ex-dividend date for long positions and subtracted for short positions, based on shares held at the prior close. Buying on the ex-dividend date does not receive that dividend.
  • Strategy dividends: retained as cash and deployed only when the strategy trades (entry, exit, rebalance, or resize).
  • No synthetic “artificial future bar.”

Calendar conventions:

  • Month-end: last trading day of the calendar month.
  • Year-end: last trading day of the calendar year.

Indicators and eligibility:

  • Indicators are computed from the adjusted Close.
  • BTS does not generate signals until required inputs are defined. Cross-sectional ranks/filters require all necessary fields (price, volume, sector, etc.) to be defined on the rebalance date.

Execution and position lifecycle

Signals are evaluated at Close(t) and trades execute at Open(t+1), where t is the signal day.

Missing bars and price fallback:

  • If the planned execution bar does not exist (no EOD bar), execution occurs on the next session with an EOD bar for that instrument.
  • If the execution bar exists but Open is undefined or non-positive, BTS uses the prior bar’s Close as the execution price.
  • If no subsequent bar exists for the instrument (delisting or data termination), BTS liquidates at the last available Close.

End-of-range handling:

  • BTS does not open new positions on the last in-range trading day.
  • BTS exits on the last in-range trading day at the Close (including forced liquidation) and does not leave positions open past the analysis range.

Costs, fills, sizing, and cash

Execution pricing:

  • Orders are modeled as marketable fills at the stated price (the day’s Open or Close), adjusted for costs and then adverse U.S. tick (minimum price increment) rounding:
    • price ≥ $1.00: tick = $0.01; price < $1.00: tick = $0.0001
    • buy/cover round up; sell/short round down
  • Modeled execution prices are not clamped to the day’s High–Low range.
  • BTS does not model partial fills or market impact.

Costs:

  • Cost mode: commission plus spread-aware slippage.
  • Commission: 1 basis point (bp) per side on notional traded.
  • Slippage (spread-aware): on trade days, add slippage equal to 0.5 × the Corwin–Schultz bid–ask spread estimate (fraction of price) per side, computed from daily High/Low (treat undefined/negative as 0; cap at 0.20).
  • Spread alignment: execution on day t uses the spread estimate from day t−1 of the execution bar; if Open is missing and the prior Close is used, the spread aligns to the price-supplying bar (t−2 of the execution bar).

Sizing and cash:

  • Strategy positions are sized in whole shares; residual cash remains in cash.
  • For target-notional sizing: shares are rounded down to the largest whole-share position whose notional at the modeled fill price does not exceed the target; the long/short direction is applied after rounding.
  • Cash earns 0% unless a strategy explicitly specifies a cash yield or a cash instrument.

Excludes: taxes, regulatory/clearing fees, margin interest, and interest on cash unless a strategy explicitly models them.

Universes and proxies

Proxies:

  • When a strategy references an index or asset class, BTS implements it using a liquid, tradable instrument (typically an ETF proxy). If the proxy has limited history, the backtest begins at the first available EOD bar for that proxy.
  • Tickers used for trading are stated in the strategy entry.

Default liquid U.S. common-stock universe:

  • Listings: NYSE, Nasdaq, NYSE American.
  • Instrument type: U.S. common stocks (exclude ETFs and exchange-traded notes (ETNs), closed-end funds, preferred shares, rights/warrants/units, and other non-common equity types using Norgate metadata where available).
  • Filters at the rebalance date: Close ≥ $5; top 1,000 by average daily dollar volume (ADV$63; 63-trading-day average of Close × Volume, inclusive of the rebalance date).

Index membership universes and survivorship bias:

  • If a universe is defined by membership in a named index/list, BTS uses point-in-time historical constituents (constituents as of each date) to avoid survivorship bias.
  • If index weights are required, BTS uses point-in-time weights when available; otherwise BTS uses a clearly labeled proxy approach, or does not report results for that strategy.

Rule-defined universes:

  • If a universe is defined by rules (rather than a constituent list), it is determined point-in-time at each rebalance date and held constant until the next rebalance unless a strategy requires more frequent updates.

Portfolio constraints and short selling

Portfolio equity is marked to market at each day’s close: cash plus open positions (long market value positive; short market value negative).

For short-selling portfolio backtests, BTS applies a simplified U.S. Regulation T (Reg T) collateral rule: short sale proceeds are sequestered as collateral and an additional 50% of short market value must be supported by equity. If targets exceed this constraint, BTS scales long and short targets proportionally using a single common factor (unless a strategy explicitly specifies another precedence).

Borrow fee: 1.0% annual, accrued on remaining short market value from Close(t) to Close(t+1) using calendar-day gaps on a 365-day basis. Variable borrow rates and hard-to-borrow constraints are not modeled unless a strategy explicitly overrides.

Backtest window, reporting, and benchmark

Backtests are run on all available history for the instrument(s) under BTS data constraints. Reported performance metrics are computed over the subrange from the first full calendar year through the last full calendar year, excluding partial first and last years.

Benchmark standard (Buy & Hold, typically SPY): buy at the open of the first in-range trading day and sell at the close of the last in-range trading day. Benchmark results are total return (dividends reinvested). Dividend reinvestment is an accounting convention (fractional-share-equivalent) with no additional trading costs; all other benchmark executions use BTS default costs and execution conventions.