Backtest Settings: Price Next Open or Next Close

Research
1

In order to backtest my strategy I am not sure if it is better to use Next Open or Next Close price in the backtest settings of the screener.

Any recommendations about this?

Thank you very much in advance.
Michael

2

I would use both. If there is a significant difference you should investigate as to why. Hopefully there are similar. Close is a bit more realistic but there are reasons to use open, especially if you have a rule that tries to buy following an overnight gap. Just don’t get fooled into thinking that you can buy the open in illiquid stocks where it trades 100 shares at a 3% discount (gap down) but never again for the rest of the day. But if you backtest liquid stocks it may not matter as much.

3

Thanks a lot for your advice. Very helpful.

4

I generally advise that if you trade at the open, use Next Open. If you trade during the day – for example, with Folio’s window trades – use Next Average of High and Low. If you want results that are more generally verifiable, use Next Close. (Though I caution that verifiable to external sources is not a product goal.)

That said, I agree, if you’re getting massive differences then I would investigate why.

5

Thank you Paul