What is Backtesting?
It is a method of testing how successful an investment strategy will be using historical market data.
Overview
Backtesting asks 'How much would I have made if I had used this strategy 2 years ago?' It looks for an answer to the question. It allows you to predict how your strategy might perform in the real world by simulating historical data. This method helps you spot mistakes in the strategy without losing real money.
How it works
You set your trading rules, then load those rules into software with historical data. The software reports to you how much profit or loss your strategy will make in that period.
Where it is used
It is used in algorithmic trading and financial modelling.
Commonly confused with
Not to be confused with predicting the future; Working well in the past does not mean that it will perform the same in the future.
Frequently asked questions
Does backtesting give accurate results?
No, historical data does not guarantee the future, but it does help you understand whether your strategy makes sense.
What data is used?
Past price movements, transaction volumes and economic indicators are used.
Related terms
Related tools
This explanation was written in plain language for TreScout and machine-translated from the Turkish original · the Turkish version prevails. If something looks wrong or missing, write to hello@trescout.com. Read in Turkish →