Backtesting

Testing a strategy against historical market data before risking live capital.

Backtesting is the execution of a trading strategy against historical market data to estimate how it would have behaved under a defined set of assumptions. A result depends on the selected instruments, period, data resolution, fees, capital and execution model.

A backtest is evidence about a model under past conditions, not a forecast. Look-ahead bias, overfitting, missing costs and poor-quality data can make results appear stronger than they are.