Backtesting

Is There a Way to Test My Strategy Before Trading Live?

Backtesting Your Strategy Can Save Time and Money.

Keystone Strategy Trading provides the service of backtesting and optimizing automated trading strategies. Backtesting can be performed on a new strategy or an existing strategy. By testing your strategy before trading live, you could potentially save yourself thousands of dollars if the performance results are poor. In addition, it could provide you confidence in your strategy if the performance results are good.

Contact us today to backtest and optimize your strategy.

What is Backtesting?

Backtesting is the exercise of validating a trading strategy on prior time periods. Instead of validating a strategy for future time periods, which could take significant time, a trader can do a simulation of his or her trading strategy on relevant past data. By testing on historical datat, the trader can validate the effectiveness of his or her trading ideas. When a theory is backtested, the results achieved are highly dependent on the price action of the tested period.

Backtesting will provide you with data to help you determine if your strategy has merit. This data in no way guarantees that your strategy will be successful in the future. However, it will help you understand the risk you would have incurred had you traded your strategy during the specified period.

Keep in mind that backtesting a theory assumes that what happens in the past will happen in the future. Therefore, this assumption can cause potential risks for the strategy.

For example, let’s say you want to test a strategy based on the notion that break outs or support and resistance generate a defined result. If you were to test this strategy during a specified time period, the strategy would perform significantly better. However, trying the same strategy outside the specified time periods would result in poor returns.

As frequently stated and all too true, past returns in no way guarantee future performance.