Backtest
A backtest replays history: the strategy's rules are applied bar by bar (or tick by tick) to old data, producing a simulated track record. It answers exactly one question — how these rules would have performed on that data — and nothing more.
Backtests fail people in predictable ways: bad or incomplete data, ignoring spread and slippage, and above all overfitting — tuning parameters until the past looks perfect. A beautiful backtest is a starting point for skepticism, not proof.
Covered in depth in Lesson 04: Backtesting without fooling yourself.
Related terms
- Forward test — Running a strategy on live or demo markets going forward, after development, to see if backtest behavior holds up.
- Overfitting (curve fitting) — Tuning a strategy so tightly to historical data that it captures noise instead of a repeatable edge.
- Modelling quality / tick data — How faithfully a backtest reconstructs historical price movement — the difference between testing on real ticks and on interpolated guesses.
Get new lessons by email
Occasional, plain-language lessons on automated trading — the same tone as everything on this site. No signals, no promises, unsubscribe anytime.
- One plain-language lesson at a time — no jargon, no hype.
- The full curriculum as a printable field guide.
- No signals, no performance promises. Unsubscribe anytime.
We store your address to send you educational content and nothing else. See the privacy policy.