“I’m close to going live with my system! It works perfectly!”
– “Great! Have you backtested your system?”
Backtesting. One of those things no trader is really excited about. It usually takes a long time, involves a lot of data crunching and it’s generally, well, boring work.
Yet, it’s the one thing traders can’t live without either! To just say that it’s important for your trading success would be an understatement.
Imagine you’re Elon Musk and you’re building SpaceX rockets. You’ll want to test if they can actually be launched and if they fly as expected, right? Backtesting is that step for trading. It checks if something works as expected.
Or rather, you need to ask yourself the question:
How can I make sure that my strategy has an actual edge?