Backtesting

Backtesting is the process of running a trading strategy against historical price data to see how its rules would have performed in the past. Platforms such as MetaTrader's strategy tester or TradingView's replay tools step through archived bars or ticks, executing the strategy's entries and exits and compiling statistics: net result, win rate, profit factor, maximum drawdown and trade count. A backtest's value depends on its inputs and assumptions. Poor tick data, ignored spreads, swaps and slippage, or unrealistic fill logic all inflate results, and optimising parameters until the history looks perfect produces curve-fitting rather than insight. Practitioners therefore treat a backtest as a filter, not a forecast: strategies that survive it move on to forward testing on a demo account, and out-of-sample methods such as walk-forward analysis check whether the rules hold up on data they were not tuned on.