Back Testing on IBKR with BackTrader – Part I

This post is a part of the series “Building Your Automated Strategy with IBKR: From Back Testing to Paper Trading to Live Execution”.

Back Testing Basics 

Backtesting assesses the viability of a trading strategy by discovering how it performed using historical data.

Backtrader – An Open Source Backtesting Framework

Backtrader is a Python library that allows backtesting and strategy development before live trading. (see: https://www.backtrader.com/docu/) .

It is an open-source framework that enables strategy testing using historical data. Furthermore, it can be used to optimize strategies, create visual plots, and can also be used as a trading engine for actual trading in the market. It has an active community providing support and help for people using the platform (see: https://community.backtrader.com)

Backtrader and Interactive Brokers

Backtrader has a robust integration with Interactive Brokers for historical data, paper trading and live trading. But the current implementation has not been updated for many years.

An Updated Integration for Interactive Brokers

This article presents an updated integration, and describes how it can be seamlessly installed into Backtrader so that it can be used with the latest version of the IB Native API.

What is the IB TWS API?

The Interactive Brokers Python TWS API allows you to trade via a running TWS (or IB Gateway) using Python code.

Acting as a bridge, the API allows for sending of orders from custom software or scripts, receiving live or historical data. Note that all the orders are reflected in the TWS frontend.

See: https://ibkrcampus.com/ibkr-quant-news/python-and-the-ibkr-tws-api/ for more information

System Workflow

Getting Started

There are four basic steps to getting started:

1. Open an account with IB and setup the trading frontend (TWS or IB Gateway) 
2. Download and install the IB TWS API 
3. Down and install BackTrader
4. Update default IB integration built into Backtrader

Signup, Download and Install the IB TWS Frontend/TWS API

Open the account at Interactive Brokers (using https://www.interactivebrokers.com/en/pagemap/pagemap_newaccounts_v3.php) and download and install TWS.

You can download the TWS API by navigating to Technology – Trading APIs – Get API Software, or by following this link – http://interactivebrokers.github.io/

Installing the TWS API 

Create a directory named back_testing, and copy the downloaded file twsapi_macunix.1016.10.zip into this directory, unzip and it will create the IBJts directory.

Create And Enable A Python Virtual Environment within the back_testing directory

python3 -m venv ./env
source ./env/bin/activate

Drill down to the directory back_testing/IBJts/source/pythonclient and run:

	python setup.py install

To check if it is installed correctly, open a Python terminal and type:

Python 3.8.10 (default, Jun 22 2022, 20:18:18) 
[GCC 9.4.0] on linux

Type "help", "copyright", "credits" or "license" for more information.

>>> import ibapi
>>> 

If no errors appear, the install was successful!

Download and Install BackTrader

There is no special requirement for installing the BackTrader library. It also doesn’t have any dependencies. You can install this library by using the package manager “pip”.

	pip install backtrader

Now you can use backtrader with its full functionality.

To check if it is installed correctly open a Python terminal and type:

Python 3.8.10 (default, Jun 22 2022, 20:18:18) 
[GCC 9.4.0] on linux

Type "help", "copyright", "credits" or "license" for more information.

>>> Import backtrader as bt

If no errors appear, the install was successful.

Download and Install the updated IB TWS integration

Either clone the github repo:

git clone https://github.com/atreyuxtrading/atreyu-backtrader-api.git 

Or download a released version:

wget https://github.com/atreyuxtrading/atreyu-backtrader-api/archive/refs/tags/v1.0.zip

Unzip file, and install the Atreyu Backtrader API.

unzip v1.0.zip

cd atreyu-backtrader-api-1.0 ; python setup.py install

Check Settings of Locally Running TWS 

Example: Download Realtime Bar Data from TWS

Stay tuned for the next installment in this series to learn how to set up Backtrader with the latest TWS API.