Traders create algorithms on the basis of some underlying hypothesis. Once created there needs to be a way to test and validate the hypothesis out.
Backtesting assesses the viability of a trading strategy by analyzing how it would play out with historical data.
Backtesting allows a trader to simulate a trading strategy using historical data to generate results and analyze risk and profitability before risking any actual capital.
A well-conducted backtest that yields positive results assures traders that the strategy is fundamentally sound and is likely to yield profits when implemented in reality. A well-conducted backtest that yields suboptimal results will prompt traders to alter or reject the strategy.
There are many different metrics that can be used to measure the results of a backtest, the most commonly used are:
- Annualized returns vs a benchmark
- Sharpe Ratio
At Tuned, we provide one of the best backtesting platform for your strategies, a product that significantly reduces the time you spend on optimizing and validating your ideas.
Under the 'Batch Testing' section press the '+' button to open the menu, then select 'Simulation'
The composer section will pop up and allow you to select your strategy and associated settings
You can read more about backtesting here.