Backtesting
Backtesting — The process of testing a strategy against historical price data to estimate its performance.
- Quick definition: The process of testing a strategy against historical price data to estimate its performance.
- Category: Concepts
Full Definition
Backtesting runs a strategy against historical bars to compute hypothetical equity curves, win rate, drawdown, and other metrics. Quality of backtest depends on: (1) tick-level data accuracy, (2) realistic spread/commission modeling, (3) avoiding curve-fitting (using same data to design AND validate). Walk-forward analysis is more reliable than single-window backtests.
Related Terms
Walk-Forward Analysis · Algorithmic Trading · Overfitting
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