Backtesting

Backtesting is the process of using the rules that make up a trading strategy or algorithm and running them against a historical set of trading data (this could be as much as 10 years of data) for a given asset.

You’re hoping that the backtest results in trade signals or trading strategy profitability confirmation or invalidation.

The goal is to determine how your trading strategy reacts in different market cycles and whether you can gain any insight into developing a profitable trading strategy.

Backtesting can be accomplished through computer software that you install on your computer or through the use of online trading software, like Cryptohooper, and even 3rd party trading platforms.

Candlestick data and Order Book data are often used to implement backtesting tools.

There is a debate on whether backtesting is a helpful tool in determining the validity of a trading strategy, as some traders believe it is better to forward test your strategy or algorithm in a live trading environment.

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