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Trading glossary · advanced

backtest

Testing a trading idea on old charts to see how it would have done, before trusting it with anything now.

The fuller meaning

Applying fixed, written rules to historical data to estimate how a strategy would have performed, trade by trade. A backtest is only useful if it avoids look-ahead and survivorship bias, charges realistic costs and slippage, and holds up out of sample; rules tuned until the results look great are usually overfitted.

backtest, also called backtesting.

Related words

at the money · backwardation · basis · call option · contango · data snooping · delta · edge · entry trigger · exercise