Backtest
Running a strategy against historical data to see how it would have traded — the experiment before the risk.
What it means
A backtest replays history through your rules and records every simulated trade: entries, exits, profit, drawdown. It cannot prove a strategy will work — markets change — but it efficiently proves many strategies would not have worked, which is most of its value.
The quality of a backtest is the quality of its honesty: same data the live engine would have seen, same rule evaluation, costs included, and no information from the future leaking into decisions. A backtest that flatters is worse than none.
Why traders care
- Cheap falsification: kill bad ideas in minutes instead of funding them for months.
- Produces the statistics (win rate, profit factor, drawdown) that risk decisions need.
Related terms
Educational content, not investment advice. Engine details describe how TraderWe computes this value; other platforms may define it differently.