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Backtesting: Advantages of Going Automated

Backtesting is used to reconstruct hypothetical past trades using a trading strategy's rules and historical market data to evaluate a strategy's effectiveness by analyzing statistics. This allows traders to optimize, test for flaws, and gain confidence in a strategy before using it in live markets, as strategies that performed well in past backtests are likely to do so in the future as well.

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23 views1 page

Backtesting: Advantages of Going Automated

Backtesting is used to reconstruct hypothetical past trades using a trading strategy's rules and historical market data to evaluate a strategy's effectiveness by analyzing statistics. This allows traders to optimize, test for flaws, and gain confidence in a strategy before using it in live markets, as strategies that performed well in past backtests are likely to do so in the future as well.

Uploaded by

NibbleTrader
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Backtesting

Backtesting is a key component of effective trading-system development. It is accomplished by


reconstructing, with historical data, trades that would have occurred in the past using rules
defined by a given strategy. The result offers statistics that can be used to gauge the
effectiveness of the strategy. Using this data, traders can optimize and improve their strategies,
find any technical or theoretical flaws, and gain confidence in their strategy before applying it to
the real markets. The underlying theory is that any strategy that worked well in the past is likely
to work well in the future, and conversely, any strategy that performed poorly in the past is likely
to perform poorly in the future

Advantages of going automated

Its time-effective.
You can test on many instruments/timeframes easily.
Its simple if youre good at coding.

Advantages of going manual

You get a better understanding of your trade setup and what it can look like.
You get more practice, which is useful when trading live.
There isnt much preparation required.
More flexible.

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