Backtesting

Fundamentals

Testing a trading strategy against historical data to evaluate how it would have performed. Critical for validating a system before risking real capital, but beware of curve fitting and lookahead bias.

Related Terms

Expectancy

A measure of the average amount you can expect to win or lose per trade: (Win Rate x Avg Win) - (Loss Rate x Avg Loss).

Profit Factor

The ratio of gross profits to gross losses.

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Backtesting Your Strategy

Level 5: Building a Strategy · 25 min