Backtesting is the cornerstone of this website. We aim to quantify everything about the stock market, hence the name.
- We Asked Traders: What Is Your Biggest Trading Challenge? (Reader Poll)
- We Asked Traders: The Biggest Challenge Traders Face When Backtesting Trading Strategies (Reader Poll)
We made a poll on Twitter recently. We asked the following questions for our poll called how important is backtesting for your trading?
- I rarely backtest
- Moderately important
- Extremely important
- What is a backtest?
Below is the result of the poll:
Perhaps it’s no surprise, but most of our readers say backtesting is extremely important.
Why is backtesting important?
Backtesting is covered extensively on the website, but let’s summarize why backtesting is important:
- Evaluate the performance of your trading strategy. Do you have a positive expectancy? Backtesting can give you a good indication of how well your strategy would have performed in the past. This information can help you to identify any flaws in your strategy and make necessary adjustments. For most traders, this is a major first step.
- Identify profitable trading opportunities. Backtesting can help you identify market patterns and strategies you were unaware of. This info gives you trading ideas to develop other strategies.
- Gain confidence in your trading strategy. Backtesting can give you the confidence to implement your trading strategy and trade it live. Knowing that your strategy has performed well in the past can help you to stay disciplined and avoid making impulsive trading decisions.
- Automate. If you have ten backtested strategies (for example), you can automate and trade them automatically without you interfering. Automation is power! It doesn’t take more time to trade 100 strategies than 1. As a matter of fact, it probably takes less time to trade 100 strategies automatically than to trade one strategy manually.
Backtesting equals automation, automation equals scale, and scale equals power! Be careful for screw-ups, but use it to your advantage.