Backtesting
Testing a trading strategy against historical price data to estimate how it would have performed in the past.
Backtesting runs a trading strategy's exact rules against historical market data — often years of tick-by-tick or minute-by-minute price history — to produce a simulated track record: trades, equity curve, drawdowns, and performance statistics.
It's the primary tool traders and developers use to evaluate a strategy before ever risking real capital, and to compare candidate strategies against each other on a like-for-like basis.
Backtesting an EA against five years of EURUSD tick data with realistic spread and commission assumptions produces the return, drawdown, Sharpe ratio, and trade-by-trade record that would have resulted from running that exact strategy over that period.
Why it matters
A backtest is a simulation, not a guarantee — past performance never guarantees future results, and backtests can be distorted by unrealistic assumptions (no slippage, look-ahead bias, overfitting to the test period). A rigorous backtest uses realistic spread, commission, and slippage modeling, and is treated as one input among several, not proof of future performance.