Backtesting

Backtesting can be automated or done by hand, bar by bar, on past charts. Manual testing is slower but teaches you what the setup looks like as it forms.

A useful backtest records every trade the rules would have taken, including the losers and the ones you would rather forget, over enough trades and enough different market conditions to mean something.

The result is not a promise. It tells you whether the rules were viable in the past and gives you a realistic expectancy and drawdown to prepare for.

Backtesting is the cheapest way to find out that an idea does not work. It also builds the confidence needed to keep following rules through a losing run.

• Include spread, slippage and realistic fills or the numbers will flatter you.
• Test across trending and ranging periods, not just the good months.
• Never skip trades in a test because you know how they turned out.

Educational guidance only — never a trading signal or recommendation.