Let’s talk about Backtesting

[I_Anime]

Many traders overlook the importance of backtesting. Some folks here may already understand how backtesting works , for those that don’t I’m going to try to break it down to the most simplest way I can .

Backtesting is basically taking a trading strategy and applying its rules to historical market data to see how it would have performed. As a skilled trader in order to survive the market you have to come up with a strategy that suit you the most , and backtesting is what will help you figure that out , without wasting any valuable resources.

One of the common mistake most traders make , is using their live account to test their new strategy . There different strategies in the market we have price action, support and resistance, SMC and others. Those strategies are base on what some folks have observed in the market , so in order for you to know which suit you best , you will have to backtest it first and through that you can even come up with your personal strategy by modifying an existing one like price actions and the others.

Practical Steps to Backtest a Strategy

• Define your strategy
• Choose historical data
• Look for your setup
• Record every trade (very vital )
• Test enough trades
• Analyze the results ( win rate ,average win/loss, profit factor, Max. Drawdown, and overall expectancy).
• Forward test it ( in a demo account ) .

Website can use to backtest:

•Traderscasa (that’s the one I’m using recently).

https://youtu.be/yCWdahbeKk0?si=TST2AmWLEKcuH4kZ ( how to navigate the website)

You can also use trading view too.

[Floczy]

One of the common mistake most traders make , is using their live account to test their new strategy .

At some point it's not a mistake any more, it's a dopamine rush a trader has to deal with..

They have faith in what so ever strategy they feel they have successfully built and go to fund account right away to trade with the strategy. Some traders feel they don't have the time to go and backtesting, they feel it's a waste of time, and they accept the dopamine rush of funding account and trading with a strategy that has not been fully tested, highest they see one or 2 reoccurrences and they say it feel this will happen again, I feel this will work..

At some point I really feel every one should learn from their own experiences because even when I encourage some traders I know on how to paper trading or back testing and get better they still accept the dopamine rush of funding live account hoping they will make money, and they abandon the rest.

So for those that refuse to take advice let them loose some money and let them learn from their own experiences, as they said experience is the best teacher.. very real .

[EL MOHA]

So for those that refuse to take advice let them loose some money and let them learn from their own experiences, as they said experience is the best teacher.. very real .

Yes experience is the best Teacher they say but the problem is that most people actually who learn by losing money actually do not get back to trading again and the reason for this is the fact that most people actually lost their entire funding or capital to the market then or they are very discouraged to actually start coming back to trading again. This is usually a major problem that came from who they got influenced about trading from.

Backtesting is a tool which most traders over look now, in the past it is the most important thing for every trader because even if you wish to trade a new pair back testing is what you do to see if your strategy is better suited for that pair or not but right now most people are actually looking to make money easily that they don’t consider back testing

[nelson4lov]

you mentioned some important metrics to record during a backtest. I recently added two more metrics to record during my backtesting which are:

• MFE (Maximum Favorable Excursion)
• MAE (Maximum Adverse Excursion)

MFE records how much further price moved after you took profit. It helps to know if you are RR is low, high, or moderate enough to survive long term.

MAE records how far price moved against you before reversing back to a TP. This way, you will easily know with confidence where the stop-loss should be placed for your strategy.


I record both now and I have used them to refine my take-profit RR and stop loss placement since there are data backing them from every backtest I make.