In this article we will discuss one of the most overlooked steps in building a futures trading system – regardless of the kind of market it is developed for.
Backtesting is the process of simulating trades that are triggered by rules defined in a trading system on past (historical) data. The process of developing a trading system is based on the suggestion that if it consistently worked in the past, then it will continue to work in the future. Thus, backtesting is a reliable way of confirming the trading system’s profitability – or rejecting it.
Many traders – especially novice traders – tend to ignore backtesting or underestimate its importance. This opinion is usually based on books or articles on learning technical trading where some ready-to-use “rules” are usually published. From reading