Course Content
What Is Backtesting?
Backtesting can be an important step in optimizing how you engage with financial markets. It helps you learn whether your trading ideas and strategies make sense and if they could potentially turn a profit. But how does backtesting a simple investment strategy look like? What should you be wary of when testing trading strategies? Is backtesting similar to paper trading? We'll answer all these in this article.
What Is Backtesting?
About Lesson
The underlying premise behind backtesting is that what worked in the past may work in the future. However, this can be really tricky to determine. What may be profitable in a particular market environment will completely flop in another.

Backtesting with a misleading data set can lead to less than ideal results. This is why it’s crucial to find a good sample for the backtesting period that reflects the current market environment. This can be especially difficult, as the market is in a constant state of change.

Before you decide to backtest a strategy, it can be helpful to determine what exactly you would like to find out. What would make the strategy viable? Conversely, what would falsify your assumptions? If you know these beforehand, it will be more difficult for the results to affect your biases.

Backtesting should also include trading and withdrawal fees, and any other cost that the strategy may incur. It’s also worth noting that backtesting software can also be quite expensive, just as access to high-quality market data is.

On that note, if you’d like to get access to historical data from the Binance Futures platform, please fill out this application form.
And keep in mind that backtesting is, well, testing. Similar to technical analysis and charting, there’s absolutely no guarantee that it will work, even if it produces great results based on historical data.