Backtesting
Backtesting involves testing trading strategies or models against historical data to evaluate their effectiveness. It’s a crucial step in developing reliable trading approaches, simulating how they’d perform in past market conditions. Positive backtesting results suggest a strategy might succeed, offering confidence in its viability. By analyzing metrics like returns or drawdowns, traders refine models before risking real capital. Though not foolproof—past performance doesn’t guarantee future gains—it’s a key tool for validating ideas, reducing guesswork in strategy design.
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