Backtesting
Backtesting means testing a trading strategy on historical price data to see how it would have performed. You're checking if your idea actually works before risking real money.
Understanding the Concept
Most trading strategies sound great until you actually test them. Backtesting reveals the truth: win rate, average gain, max drawdown, and whether you'd be bankrupt or rich. Without backtesting, you're gambling with an untested theory. Good backtesting requires years of data across different market conditions—bull markets, bear markets, ranging markets. If your strategy only worked in 2021's bull run, it's not a strategy, it's luck. Watch out for overfitting, where you tweak your strategy to perfection on old data but it fails on new data. The goal is finding something that works consistently across different periods, not just cherry-picked timeframes.
Real-World Example
You backtest a "buy RSI under 30, sell RSI over 70" strategy on Bitcoin from 2018-2024. Results show 42% win rate but 1:3.5 risk-reward, making it profitable. Without backtesting, you'd never know those numbers.
How Strykr Helps
Strykr's AI assistant helps you understand and apply Backtesting concepts to your trading. Get personalized guidance and real-time market analysis to make better decisions.
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