How to backtest trading systems properly?

Backtesting is a process of applying your trading strategy to historical data in order to see if it is viable for live trading and quantify its expected performance. Backtesting is an essential part of the systematic trading process so it is crucial to learn how to backtest your trading systems properly.

In the first step of the systematic trading process – the trading system development stage you learned the basics of systematic trading such as what is a trading system, what is the best approach for systematic trading beginners, what are the different price movement regimes and how to apply different types of trading systems for each one of them.

It is now time for you to learn how to evaluate the performance of different trading systems and decide which ones are good enough to be selected for your trading system portfolio and enabled for live trading.

In order to produce reliable results you can trust, you should ensure your backtesting process is solid. There are two main factors that you should not underestimate in order to achieve dependable backtest results. The first thing is high-quality historical data. The second thing is including realistic transaction costs.

Topics overview:

  • The importance of historical data in backtesting
    • Learn why is it important to backtest your trading systems on high-quality historical data. What are the factors you should consider when choosing the data source for your backtests?
  • The impact of transaction costs on backtesting results
    • Learn why is it important not to forget to account for transaction costs in your backtests. What are the different types of transaction costs you incur in trading that can impact the performance of your trading systems?
  • A practical example of trading costs
    • Take a look at a practical example of how trading costs impact the profitability of a trading system.

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