Adrian ReidFounder of Enlightened Stock Trading

Real Backtesting vs Fake Backtesting

11 Mar 2026 · 2 min

Watch on YouTube

1:44

In this solo presentation, Adrian Reid outlines three progressive tiers of backtesting for traders. The first tier is manual chart‑based testing, where a trader visually marks buy and sell signals on a price chart and records outcomes by hand. The second tier moves to systemized, rule‑based backtesting: trading rules are coded and applied automatically to decades of market data across thousands of instruments, allowing the construction of a simulated portfolio and the measurement of performance metrics, especially drawdowns. Reid stresses that understanding drawdowns is crucial because surviving long‑term trading hinges on staying in the game—avoiding account wipe‑outs. The third, advanced tier combines multiple distinct trading systems into a single portfolio and backtests their interaction, providing insight into diversification benefits and how the systems affect each other’s risk and return. Throughout, the talk emphasizes the necessity of rigorous, data‑driven backtesting to ensure survivability and long‑term success.

Chapters

There's several different levels of backtesting. The first level is where you look at a chart and you say, okay, look, there's a buy. Yep. There's a sell. Okay. Now there's another buy and there's another sell. That's manual backtesting on the chart where you basically, you're lining up your indicators, you're having the buy and sell arrows and you're looking along and you're recording wins and losses in a manual way. That's the base level. The next level up is testing in a systemized way where you put your rules into software and you apply those rules to much more market history, 20, 30 years over thousands of stocks or cryptocurrencies or futures markets, whatever you're trading. And you assemble a portfolio of trades based on that system and you see how the portfolio would have performed over time. This is the second, the next level. Now that's really critical because it tells you about the drawdown that you would have suffered in the past because That's the primary driver of whether or not you'll be able to stay in the game, right? And the number one driver of long-term success, the first and most important thing, is to stay in the game, right? Because if we wipe ourselves out, if we blow up an account, we're out of the game. We can't keep trading. So we really need to backtest to understand, are we going to stay in the game? Can I survive long-term trading like this? Does this make sense? Yeah, so backtesting in a systemized way, your set of rules over many decades of market history. The next level above that is combining multiple systems together and testing them together to see how those systems interact. And that's, that's the advanced level where you understand how is your, how effective is your diversification.