Build and backtest your first strategy
This walkthrough takes about ten minutes. You’ll open a starter pattern, read its backtest, change one rule, and save your own copy. By the end you’ll know your way around the builder and have seen, first-hand, the most important lesson in backtesting.
1. Open the builder#
Go to the builder. You don’t need an account to look around. Under Start from a pattern are four starter patterns, each with its last ten years next to simply holding QQQ, a fund that tracks the Nasdaq-100:
| Pattern | What it does | Rules |
|---|---|---|
| Trend following | Ride a risk-balanced growth basket while the trend holds, and step aside when it breaks. | QQQ over its 200-day average → SPY and QQQ by inverse volatility; otherwise an RSI(10) dip buy, else GLD and IEF. |
| Buy the dip | Hold a risk-balanced core and concentrate into a short-term pullback. | QQQ RSI(10) below 30 → QQQ; otherwise SPY, QQQ and GLD by inverse volatility, daily with a 5% drift threshold. |
| Momentum rotation | Rank whole baskets against each other and hold whichever is strongest. | Top 1 of QQQ, a SPY and QQQ basket, GLD, and BIL by 3-month return, monthly. |
| Static allocation | Spread across index, growth and gold so each contributes similar risk. | SPY, QQQ and GLD, inverse-volatility weighted, monthly with a 10% drift threshold. |
They are deliberately simple, and each was checked on two separate decades before we put it here. They’re starting points to learn from, not recommendations.
2. Read a pattern’s card#
Each card shows three numbers:
- Max DD (maximum drawdown): the biggest drop from a peak. −20% means that, at its worst, the strategy was 20% below its previous high.
- Sharpe: return per unit of ups and downs. Higher means a smoother ride for the return you got.
- CAGR (compound annual growth rate): the average yearly growth.
The chart shows how $1 would have grown, and the grey line is QQQ. Look at the drawdown first: a strategy you abandon in its worst year earns you nothing. Reading a backtest explains each number in more detail.
3. Use a template#
Choose Use this template on Trend following. This step needs an account, and creating one is free: you’ll pick a public handle, the name that appears on anything you publish later (a pseudonym is fine). Tactfolio then makes a private copy that only you can see and opens it in the editor.
4. Find your way around the editor#
The editor has two halves. The tree, on the left, holds the rules. This is the Trend following tree:
In words: if QQQ is above its 200-day moving average, hold SPY and QQQ, sized so each carries a similar amount of risk. Otherwise, if QQQ has just fallen hard (its 10-day RSI is below 30), buy the dip in QQQ. Otherwise, wait it out in gold (GLD) and Treasury bonds (IEF). The rules run every trading day.
Select any block to change it.
The backtest, on the right, reruns whenever the rules change. It shows how the strategy grew, its drawdowns, what it held over time, and what it would hold today. It starts with all the history available; to compare it with the card you just saw, open the Window menu and choose 10Y.
5. Change one thing#
Find the condition that compares QQQ with its 200-day moving average. Change 200 to 150 and watch the backtest update. Did the drawdown get better or worse? Try 100 and 250.
You’ll probably find a number that looks better than 200. Before you keep it, switch the window between 5Y, 10Y, and Max, and notice that the best number moves. That’s the lesson: on any one stretch of history, some setting always looks best, and much of its lead is luck. Why past results mislead explains why, and what to do about it.
6. Look at the honest numbers#
Under the chart, the Reality checks table asks three uncomfortable questions:
- Next-day open: what if you couldn’t trade at the close, and traded the next morning instead? If this line is far from the main one, the strategy depends on precise timing.
- Costs at 20 and 40 bps: what if trading cost more than the default 0.05%? If the result falls apart, it depends on cheap trading.
- QQQ at same risk (named after your benchmark): what if you had simply held the benchmark, scaled to the strategy’s level of ups and downs? If this beats the strategy, the rules aren’t adding much.
A strategy worth keeping survives all three.
7. Save#
Choose Save. Each save is kept as a revision, so you can keep experimenting without losing what worked, and go back to any earlier one. Your strategies are listed in your workspace.
On the Free plan, every strategy you save is shared with the community on Discover, so the first save asks for a description and publishes the strategy (Save and share). Free builds five strategies a day, and each one you built that day can be backtested and saved again as often as you like. Plus and Pro save privately and build without a daily limit.
8. Share it, if you want to#
On Plus and Pro, your strategy stays private unless you publish it. Once published, it gets a public page with its rules and backtest, and a place in the Discover, the list of everyone’s published strategies. Publishing and sharing covers what that means and what can’t be undone.
Next steps#
- Builder guide: every block and setting.
- Common patterns: how trend filters, momentum, canaries, and risk balancing are built.
- Use Tactfolio from your AI assistant: describe a rule in a sentence and let an assistant build and test it.