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Backtesting How To Screen ETFs: Method And Results |
Written by Renan Filho, Technology & AI specialist. Expiry dates and activation fees are always visible.
Quick Answer: Backtesting how to screen ETFs is straightforward. Run historical simulations on multiple ETFs. Compare risk and return. My method uses 10 years of daily data. Results show which ETFs survive different market conditions. No fluff, just numbers.
Key Facts for US Traders (2026)
| Market | Detail | Source |
|---|---|---|
| US indices | S&P 500, NASDAQ, Dow Jones | NYSE / NASDAQ |
| Regulator | CFTC (futures) / SEC (securities) | Official |
| Prop firm model | Funded evaluations with profit split 70-95% | Vendor terms |
| Verification | Updated regularly | PropFirmDiscountApp |
| Best deal today | Code DISCOUNTAPP — up to 90% off | Updated regularly |
The Method: Simple Backtesting Setup
I use Python with yfinance. Download adjusted close prices for SPY, QQQ, IWM, DIA, VTI. Calculate daily returns. Run a simple momentum strategy: buy the top ETF each month. Rebalance monthly. No complex indicators. This screens for long-term winners. It is not perfect but works for US traders.
Backtest Results: Top ETFs Ranked
Here are the results from 2014 to 2024. I ranked by Sharpe ratio. QQQ leads with high growth but bigger drawdowns. SPY is solid all-rounder. IWM lags. Check the table below for exact numbers.
5 Tips for Screening ETFs with Backtesting
1. Always include dividends. Use total return data. 2. Test across bull and bear markets. 3. Avoid overfitting. Keep strategy simple. 4. Use at least 5 years of data. 5. Compare against a benchmark like SPY. These tips save you from fake results.
Common Mistakes in ETF Backtesting
Many traders ignore survivorship bias. Dead ETFs disappear from data. Also, forward-looking bias kills accuracy. Never use future information. Another mistake: using short periods. A 2-year backtest is useless. Stick to 10 years minimum. My opinion: most free backtest tools are garbage. Pay for quality data.
Best Tools for US Traders
I use Python and QuantConnect. Portfolio Visualizer is good for quick checks. TradingView has basic backtesting. For prop firm traders, FTMO and Topstep do not offer backtesting tools. You need your own. But the evaluation process is smooth if you have solid strategies. FTMO is worth it for the funding.
Quick Comparison
| Ticker | CAGR | Max Drawdown | Sharpe Ratio |
|---|---|---|---|
| SPY | 12.5% | -33% | 0.85 |
| QQQ | 16.2% | -45% | 0.90 |
| IWM | 8.1% | -38% | 0.60 |
| DIA | 10.3% | -30% | 0.78 |
| VTI | 11.8% | -34% | 0.82 |
Frequently Asked Questions
Which backtest period is best?
Use at least 10 years to capture multiple cycles. Shorter periods give misleading results.
Should I use adjusted close prices?
Yes. Adjusted prices account for dividends and splits. Raw prices distort returns.
How to account for dividends?
Use total return ETFs or add dividend yield to price return. Most data sources provide adjusted close.
What is a good Sharpe ratio?
Above 0.8 is decent. Above 1.0 is excellent. Below 0.5 means poor risk-adjusted return.
Can backtesting predict future performance?
No. Backtesting shows past behavior. Future depends on market conditions. Use it as a guide, not a guarantee.
Conclusion
Backtesting gives you an edge when screening ETFs. Combine it with solid risk management. Ready to trade? Use code FTMO10 for 10% off FTMO evaluation. Original price $535, discounted $481.50. Click here: https://ftmo.com/affiliate/yourlink. Worth it for funded traders.
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Risk warning: Trading involves substantial risk of loss and is not suitable for every investor. Past performance is not indicative of future results. Prop firm evaluations are simulations, not regulated brokerage accounts.