Adrian Reid explains backtesting: applying trading rules to historical data to test if a strategy works. The catch is it doesn't predict the future. Traders often mistake a profitable backtest for a profitable strategy.
Have you heard about backtesting in trading but wondered what it actually is? My name's Adrian Reid. I'm the founder of Enlightened Stock Trading, and I wanna give you an introduction to backtesting in trading, explain what it's all about, how it works, the benefits and purpose, and also the limitations of backtesting. Because like everything, backtesting is not the be-all and end-all. It's not the one thing that's gonna make or break your trading career, but it is one of the most important skills that you can learn as a systematic trader. So first of all, what is backtesting? Well, simply backtesting is when you take your trading rules, the rules for your trading strategy, and you apply them typically using a backtesting software to past data. And what you're trying to do is generate all of the signals that your trading strategy would have generated in the past and evaluate how profitable those signals were in the past. Now, the reason you wanna do this is to determine whether or not that strategy is actually good enough to trade real time going forward into the future. [MUSIC] [MUSIC]
