Welcome back guys, I’m Skeptic!
Today, I’m gonna break down one of the most important and fundamental skills every trader needs: Backtesting.
Backtesting is the very first step on your trading journey and probably the most crucial one. It’s all about putting your theoretical knowledge and trading plan to the test by evaluating them against historical market data. The goal? To see whether your strategy actually works — with what win rate, R/R ratio, and more.
But here’s the problem: many traders do it wrong. They end up getting unreliable results, which leads to self-doubt when it comes to forward testing. The real issue is not your strategy but how you conduct your backtest.
Let’s dive into the complete process! 💪
🛠️ Tools You Need
To start backtesting, you’ll need some software that supports the replay feature, allowing you to move through historical data as if it were live.
The best platforms for this are TradingView and MetaTrader. Personally, I use TradingView because it’s super intuitive and has great backtesting capabilities.
Also, make sure to choose appropriate timeframes for backtesting that align with your strategy.
🕰️ Choosing Market Conditions:
You need to backtest your strategy in all types of market conditions:
🚀 Step-by-Step Backtesting
1.Choose the Timeframe:
Make sure your backtesting timeframe matches your strategy’s timeframe. For example, if your strategy works on the 4H chart, don’t backtest on the 1H chart.
2.Select Your Strategy:
Stick to your written trading plan without improvising.
3.Pick the Asset Pair:
Test on at least three different pairs or assets (e.g., EUR/USD, XAU/USD, GBP/NZD) to get diverse results.
4.Define Entry and Exit Rules:
Clearly specify your entry, stop loss, and target levels. Never change these rules mid-backtest, even if it seems illogical. In real trading, you won’t have the luxury of endless contemplation.
🎯 Running the Backtest
📊 Analyzing Your Results
After completing your backtest, it’s time to analyze the data. Key metrics to focus on include:
🚩 Common Mistakes to Avoid
💡 Conclusion
Backtesting is the beating heart of any trader’s skill set. It builds confidence and lays the foundation for a profitable strategy. If you found this tutorial helpful, give it a boost and share it with your fellow traders. Let’s grow together, not alone!
And as Freddie Mercury once said:
We are the champions, my friends! :)🏆
Happy trading, and see you in the next analysis! 💪🔥
Today, I’m gonna break down one of the most important and fundamental skills every trader needs: Backtesting.
Backtesting is the very first step on your trading journey and probably the most crucial one. It’s all about putting your theoretical knowledge and trading plan to the test by evaluating them against historical market data. The goal? To see whether your strategy actually works — with what win rate, R/R ratio, and more.
But here’s the problem: many traders do it wrong. They end up getting unreliable results, which leads to self-doubt when it comes to forward testing. The real issue is not your strategy but how you conduct your backtest.
Let’s dive into the complete process! 💪
🛠️ Tools You Need
To start backtesting, you’ll need some software that supports the replay feature, allowing you to move through historical data as if it were live.
The best platforms for this are TradingView and MetaTrader. Personally, I use TradingView because it’s super intuitive and has great backtesting capabilities.
Also, make sure to choose appropriate timeframes for backtesting that align with your strategy.
🕰️ Choosing Market Conditions:
You need to backtest your strategy in all types of market conditions:
- Uptrend
- Downtrend
- Range-bound
- High Volatility
🚀 Step-by-Step Backtesting
1.Choose the Timeframe:
Make sure your backtesting timeframe matches your strategy’s timeframe. For example, if your strategy works on the 4H chart, don’t backtest on the 1H chart.
2.Select Your Strategy:
Stick to your written trading plan without improvising.
3.Pick the Asset Pair:
Test on at least three different pairs or assets (e.g., EUR/USD, XAU/USD, GBP/NZD) to get diverse results.
4.Define Entry and Exit Rules:
Clearly specify your entry, stop loss, and target levels. Never change these rules mid-backtest, even if it seems illogical. In real trading, you won’t have the luxury of endless contemplation.
🎯 Running the Backtest
- Use the Replay Tool to move through historical data.
- Never peek at the future price movement. If you accidentally see it, restart from a different point.
- Open a minimum of 30 positions for each market condition (e.g., uptrend, downtrend, range).
- Record each trade in a spreadsheet (Excel, Google Sheets, etc.) with the following columns:
- Date
- Time
- Entry strategy
- Stop loss
- Target
- Result (profit/loss as R/R ratio)
- Exit time
📊 Analyzing Your Results
After completing your backtest, it’s time to analyze the data. Key metrics to focus on include:
- R/R Ratio
- Win Rate (%)
- Drawdown (%)
- Losing Streaks
- Position Frequency
🚩 Common Mistakes to Avoid
- Inconsistent Strategy: Changing your rules during backtesting is a no-go. Stick to the plan.
- Incomplete Testing: Don’t cut corners and always aim for a substantial number of trades.
- Ignoring Market Conditions: Make sure your strategy is tested in all four market scenarios.
- Lack of Patience: Just because the first few trades are losses doesn’t mean the strategy is a failure. Sometimes, a losing streak can be followed by a winning trade that covers it all.
💡 Conclusion
Backtesting is the beating heart of any trader’s skill set. It builds confidence and lays the foundation for a profitable strategy. If you found this tutorial helpful, give it a boost and share it with your fellow traders. Let’s grow together, not alone!
And as Freddie Mercury once said:
We are the champions, my friends! :)🏆
Happy trading, and see you in the next analysis! 💪🔥
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.