Risk & Settings
Configure capital allocation, trading costs, and rebalancing parameters for realistic backtest results.
Capital Settings
Initial Capital
Starting portfolio value for the backtest.
Range: $10,000 - $10,000,000
Default: $100,000
Examples:
- $10,000 — Small retail account
- $100,000 — Standard testing baseline
- $1,000,000 — Institutional or large account
💡 Tip: Use $100,000 as a baseline for comparing strategies. Percentage returns are the same regardless of capital.
Allocation Per Trade
Percentage of capital allocated to each position.
Range: 1% - 100%
Default: 5%
How it works:
- 5% allocation = Maximum 20 positions (100% / 5%)
- 10% allocation = Maximum 10 positions
- 20% allocation = Maximum 5 positions
Examples:
| Allocation | Max Positions | Risk Level | Use Case |
|---|---|---|---|
| 2% | 50 | Very Low | Highly diversified |
| 5% | 20 | Low | Balanced portfolio |
| 10% | 10 | Medium | Focused portfolio |
| 20% | 5 | High | Concentrated bets |
| 50% | 2 | Very High | Aggressive trading |
⚠️ Warning: Higher allocation = higher risk. Most strategies should use 5-10%.
Trading Costs
Model realistic transaction costs to avoid inflated backtest results.
Commission
Trading fees per transaction (as percentage of trade value).
Range: 0% - 5%
Default: 0.1% (10 basis points)
Common Values:
- 0% — Zero-commission brokers (unrealistic for large orders)
- 0.05% — Low-cost brokers ($5 per $10,000 trade)
- 0.1% — Standard retail commission ($10 per $10,000 trade)
- 0.5% — High-cost or international brokers
Example:
Trade Size: $10,000
Commission: 0.1%
Cost: $10 per trade ($20 round-trip)
Slippage
Price impact and execution delay (as percentage).
Range: 0% - 5%
Default: 0.05% (5 basis points)
What is slippage?
- Difference between expected price and actual execution price
- Caused by market impact, delays, and liquidity
Common Values:
- 0.01% — Highly liquid stocks (AAPL, MSFT)
- 0.05% — Standard stocks
- 0.1% — Less liquid stocks
- 0.5%+ — Small-cap or illiquid stocks
💡 Tip: Use 0.1% commission + 0.05% slippage for realistic results. Total cost = 0.3% round-trip.
Rebalancing
How often the strategy re-evaluates positions.
Rebalance Frequency
| Option | Description | Use Case |
|---|---|---|
| Daily | Check signals every day | Short-term strategies, active trading |
| Weekly | Check signals once per week | Swing trading, medium-term |
| Monthly | Check signals once per month | Long-term, low-turnover strategies |
How it works:
- On rebalance days, the strategy checks all entry/exit conditions
- New positions are opened if entry conditions are met
- Existing positions are closed if exit conditions are met
Example:
Rebalance: Daily
Date: 2024-01-15
Actions:
- Check all stocks for entry signals
- Open 3 new positions (AAPL, MSFT, GOOGL)
- Close 2 positions (TSLA, NVDA) that hit exit conditions
Choosing Rebalance Frequency
Daily:
- ✅ Captures short-term opportunities
- ❌ Higher trading costs
- Best for: Day trading, momentum strategies
Weekly:
- ✅ Balanced approach
- ✅ Lower costs than daily
- Best for: Swing trading, mean reversion
Monthly:
- ✅ Very low trading costs
- ❌ May miss short-term signals
- Best for: Long-term, trend-following
Default Asset (Idle Capital)
When your strategy has no open positions, idle cash sits uninvested. You can specify a default asset (e.g., SPY, GLD, TLT) to automatically invest idle capital into.
- The default asset is bought when all strategy positions are closed and sold when a new entry signal triggers
- P&L from the default asset is tracked separately in your results so you can see how much return came from your strategy vs the default asset
- Useful for rotation strategies where you want to stay invested even when no signals are active
Example: Set GLD as the default asset — when your momentum strategy has no positions, idle cash rotates into gold. When a new signal fires, GLD is sold and the proceeds fund the new trade.
Timeframe
Data granularity for the backtest.
| Timeframe | Description | Use Case |
|---|---|---|
| 5M | 5-minute bars | Intraday scalping |
| 10M | 10-minute bars | Intraday trading |
| 15M | 15-minute bars | Intraday trading |
| 30M | 30-minute bars | Intraday swing |
| 1H | 1-hour bars | Short-term swing |
| 1D | Daily bars | Most strategies |
| 1W | Weekly bars | |
| 1M | Monthly bars |
Default: 1D (Daily)
💡 Tip: Use daily (1D) timeframe for most strategies. Intraday data requires more sophisticated execution modeling.
Example Configurations
Conservative Long-Term
Initial Capital: $100,000
Allocation Per Trade: 5%
Commission: 0.1%
Slippage: 0.05%
Rebalance: Monthly
Timeframe: 1D
Profile: Low turnover, low costs, diversified
Aggressive Swing Trading
Initial Capital: $50,000
Allocation Per Trade: 10%
Commission: 0.05%
Slippage: 0.05%
Rebalance: Daily
Timeframe: 1D
Profile: Active trading, higher risk, focused positions
Day Trading (Intraday)
Initial Capital: $25,000
Allocation Per Trade: 20%
Commission: 0%
Slippage: 0.1%
Rebalance: Daily
Timeframe: 15M
Profile: High frequency, concentrated, intraday
Best Practices
✅ Use realistic costs — Don't assume zero commission/slippage
✅ Match rebalance to strategy — Daily for short-term, monthly for long-term
✅ Start with 5% allocation — Provides good diversification
✅ Test multiple settings — See how costs impact performance
❌ Don't ignore costs — They compound over time
❌ Don't over-allocate — 50%+ per trade is extremely risky
❌ Don't use intraday data — Unless you understand execution modeling
Next Steps
- Understanding Results — Interpret backtest metrics
© 2026 Vaanam, Inc. All rights reserved.