WHY BACKTEST STRATEGY ARE VERY IMPORTANT FOR TRADER?

Backtesting is a manual or systematic method of determining whether a trading strategy or trading setup has been profitable in the past.
A trader should backtest a strategy to help determine if a trading strategy is likely a waste of time and money, or if it shows promise and profitability in a variety of markets.
While you can get software that does systematic backtesting… we prefer manual backtesting as it can be carried out by any type of trader,
It is a key component in developing an effective trading strategy. There are infinite possibilities for strategies, and any slight alteration will change the results. This is why backtesting is important, as it shows whether certain parameters will work better than others.

HOW TO BACKTEST:


 1) You need data to use in testing… if you are testing short-term strategies on small timeframes then use at least a few weeks of trading data.

If you are using higher timeframes, you should use years of trading data.



2) Define the strategy parameters—entry conditions, exit conditions, etc.

3) Analyse price charts for entry and exit signals.

4) Once you have completed this process, you can start to total all the trade results to see how profitable or unprofitable your trading strategy/setup has been over time.