Did It Beat Simply Holding the Stock?
A strategy's return means nothing on its own. The question is whether it beat buying the stock and doing nothing, and at what risk.
Reading a BacktestIntermediate 7 min read· Lesson 2 of 6 in Reading Results Honestly
The free competitor
Every backtest has a competitor that costs nothing: buy the stock on the first day and hold it to the last. A rule that made 40% sounds good until you see the stock itself made 60% while the rule sat in cash half the time. The Scanner's Backtest tab draws both lines on one chart and states how far the strategy beat or lagged buy-and-hold.
Why simple rules usually lose to it
Stocks have tended to rise over long stretches, and a rule that is out of the market part of the time misses part of that rise. Worse, the sharpest up days tend to arrive close to the worst down days, exactly when trend rules have stepped aside. Tested here on daily bars from 2010 to mid-2026, the classic 50/200-day cross lagged buy-and-hold on all eight of AAPL, MSFT, NVDA, TSLA, GOOGL, JPM, KO and NFLX. That is less a failure of the rule than the price of being out — and those eight are famous BECAUSE they rose, which flatters any buy rule (see Survivors and Hindsight).
When lagging can still be the better deal
Return is only half the comparison. Max drawdown is the deepest fall the strategy's account took from a high; Sharpe is its return per unit of day-to-day swing. A rule that made 30% with a 15% worst drop may be more usable than holding through 60% with a 50% drop: if you would have sold in panic at −40%, the 60% was never yours. What does not count is a rule that lagged on return AND fell as far.
One stock is an anecdote
A rule that beat buy-and-hold on one stock over one stretch has shown you one example. Run it, unchanged, on several stocks you did not pick for being winners, including one that went sideways and one that fell. A rule worth keeping holds up across them; most do not, and finding that out here costs nothing.
What this backtest leaves out
The Backtest tab is deliberately simple: one stock, long only, the whole account in each trade, no commission or spread, and it trades at the close of the bar where the rule fires, while in practice you would usually get the next open. Each of those flatters a little. A rule that beats buy-and-hold by a hair is inside the margin those simplifications create.