Whatever the strategy or indicator is, backtesting is needed.
What Is Backtest Trading Strategy?
Backtest is applying a trading strategy to historical data to check its profitability.
It allows you to test trading ideas like paper trading.
If backtest trading strategy shows good results, traders may apply the strategy to the live market.
Backtest trading strategy is essential when it comes to automated trading.
Many Traders use this backtesting because what worked in the past may work in the future.
Just like technical analysis and charting, there’s no guarantee that backtesting will work, even if it produces excellent results on historical data.
For example, imagine a long-term strategy for nifty; we buy at 15000 at the cross-over of moving average.
Then we sell nifty at another moving average cross-over.
In backtesting, we will get three to four signals, in that three trades will be profitable and one will be at a loss.
That will not work all time, but tests like this can give us a good starting point.
Some traders add strategies and technical indicators to improve their technique, making signals more accurate.
There are many ways to do backtesting; some do it manually using notes and spreadsheets.
Others use computer code or specialized software to automate the process.
How To Backtest Trading Strategy?
Find Your Trading Strategy
Where You Will Backtest Trading Strategy
Where your results will get updated
Defining your strategy is important because before you can even talk about backtesting, you must know the process you’re going to test.
You have to be transparent and objective on the condition of your trading setups entries exits.
What are the key things you should have for a backtest trading strategy?
What are the conditions of your trading setup?
How much are you risking for the trade?
Which time frame are you trading?
How much is your capital?
What is your entry trigger?
Where is your stop-loss?
How much money will you risk for the trade?
Where will you take the profit?
An example for backtest trading strategy,
If the price is above 50 EMA, then the trend is bullish
If the trend is bullish, then identify the area of support where price could retrace
If the price would retrace to your place of support, then wait for the bullish sign
If you see the bullish signal, like buying candle or volume, then enter long at next candle open If you are in long, then
place the stop loss below the swing low and take profit at the swing high
Select the stock you want to backtest trading strategy and scroll back to the earliest of time
Plot the necessary trading tools on your chart
After seeing the signal, mark your entry, stop loss, profit target and record the trade results.
It isn’t my strategy; this is just an example.
You have to mark these points before the backtesting.
What Is The Name Of The Setup?
What Is The Market You Are Trading?
What Is The Entry Price?
What Is Your Stoploss?
What Is The Risk-Reward Ratio For Your Strategy?
For learning any strategy, you may go to the earliest time charts.
But remember this, for backtesting any strategy, earlier time charts would not work,
You will get massive confidence in your strategy by checking earlier time frame charts in backtesting.
Because in backtesting, all indicators will work, and all strategies are profitable in earlier charts.
Backtesting the market through earlier charts is like earning money without trading in a live session, which means dreaming that all the profits earned in the backtest trading strategy are yours.
By testing earlier charts if you step into the live market; I will guarantee that you will quickly lose your capital.
You may wonder that in backtesting, all my strategies had worked and delivered huge profits, but in the live market, why can’t I be able to make a profit.
The simple reason is,
In backtesting, you are testing the strategy that is already over.
All strategies and indicators will work in that backtesting, showing huge profits; it will not happen in the live market.
What does Will happen In The Live Market?
For example, you are testing the Bollinger band indicator in the live market.
Your strategy is that when the Bollinger band has expanded, you have to make an entry, whether long or short.
For example, you had gone for long after seeing Bollinger band expansion and your strategy or other indicators;
I took the Bollinger band as an example.
After entering the long position based on seeing that expansion, due to the price action, that expanded Bollinger band will contract, and your portfolio will be in loss, and you have to exit that trade by seeing that Bollinger band contraction.
Per day you will get three to four trades, in that you will be profitable in only one signal; the rest of the trades will be at a loss.
On the same day, test the same strategy after the market, you will get 2 to 3 trades profitable, but in the live session, you will get only one.
My suggestion is not to backtest trading strategy on early charts and dream the profits.
I recommend sitting in the live market and applying your strategy or indicators, and then you will be able to grab the clear-cut trade and observe the price action, that for when the signals are changing when the market is giving the perfect movements.
You will get money by trading only in the live market, but not in the earlier charts.
Backtesting the early charts, all strategies will work, and all indicators are profitable, but in live sessions, it is different.
I recommend testing your strategy in the live market, then only you will be able to grab the live trades and be a successful trader.
Don’t trade in the live market by backtesting the earlier charts
At the starting of my trading career, I had started trading based on the earlier chart analysis, and I had lost my capital very soonly; I realized that this was not the right way to be a successful trader
I started testing my strategy in the live market.
Do not blush yourself by seeing earlier chart profits, and it is entirely different in the live market.
If you test your strategy in the live session, you can understand the price action, and you will be able to realize
what are the fake signals and accurate signals
What Ever The Strategy Is, Test That Strategy In The Live Market.
The trading view is the best platform for backtesting any strategy in the live market.
It is the ocean of indicators, strategies and it also contains live screeners that make your trading life accurate
My suggestion is to learn any trading course and trade according to your analysis.
Our recommended course will help to develop your trading skills.
LEARNING AND ANALYSING THE MARKET IS THE KEY TO BE A SUCCESSFUL TRADER.
If you are interested in the trading course and most probable trades, you may contact us to be a profitable and most probable trader.
Our recommended course will be helpful to improve your trading skills.
The original program will be in our private group for a trading course.
For applying these backtest trading strategy the best platform is a trading view
I am not a trainer; in the stock market, there are no trainers; all are learners.
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