Backtesting is key in the creation of trading strategies. It assesses how profitable a trading strategy is by using historical data. It helps to optimize it by running simulations that generate results showing risk and profitability before risking any capital loss. If the backtesting returns good results (high profits with reasonable risk), it will encourage getting this strategy to go alive. If the results are not satisfactory, backtesters can help to find issues.
Trading strategies define rules for entry and exit into a portfolio of assets. Backtesting helps us to decide whether it is worth going live with these trading rules. It provides us with an idea of how a strategy might have performed in the past. The ultimate goal is to filter out bad strategy rules before we allocate any real capital.
Backesting can sound out a run of...
