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Backtesting or Back-testing

A systematic or mechanical approach aimed at testing a trading strategy against historical data.  The tester creates a hypothetical portfolio and applies technical indicators against this hypothetical portfolio.  Positions are opened and closed based on the system rules and profit and loss is accounted for.

Backtesting is used to quickly determine if a trading idea is viable where if the same idea was applied in real time, it could potentially take years to answer the same question. However, it is very important to note that backtesting results are no indication of future performance.

See Also

Trading System Overview

New Trading System

Trading System Pane