GUIDE
What Is Algo Trading Backtesting?
Backtesting applies a defined trading strategy to historical market data so researchers can study how the rules behaved under past conditions.
What is tested?
A backtest may evaluate entries, exits, stop-loss rules, position sizing, trade frequency, transaction assumptions and other strategy conditions.
Common backtesting problems
- Look-ahead bias
- Overfitting
- Survivorship bias
- Unrealistic transaction costs
- Slippage and liquidity assumptions
- Historical data quality issues
Does a good backtest guarantee profits?
No. A backtest describes historical or simulated behavior under its assumptions. Live markets can behave differently, and execution conditions can change.