The Importance of Backtesting

Backtesting is essential for assessing whether a trading strategy has been successful in the past and serves as a critical foundation for future trading decisions. It offers insights into the performance metrics of a strategy, including identifying good and bad periods. By understanding how a strategy performs during different market conditions, traders can prepare mentally for potential downturns. Most strategies are ineffective, and backtesting aids in filtering out unsuccessful methods, allowing traders to focus on what works.