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Psychology

Backtesting — definition & meaning

Testing a strategy on historical data to see how it would have done.

Backtesting runs a set of trading rules over past price data to estimate how they would have performed. It helps judge whether an idea has any historical edge.

Backtests can mislead: past results don't guarantee future ones, and it is easy to over-fit rules to old data. Forward-testing on a demo account is a useful reality check.

The information on Trding.io is for general information only and is not investment advice. Trading involves a real risk of losing money, and most retail traders lose. Never trade money you cannot afford to lose.

Related terms

Paper trading
Practising trades with fake money to learn without financial risk.
Demo account
A practice account with virtual funds to trade in real market conditions.
Expectancy
The average amount you can expect to win or lose per trade.
Trading plan
A written set of rules for what, when and how much you trade.
Overtrading
Placing too many trades, often out of boredom or emotion.
FOMO
Fear of missing out — chasing a move for fear of being left behind.

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