Backtesting is the process of testing an automated trading strategy using historical data to ensure its viability before the trader risks running it on a live account. The trader can simulate the trading of a strategy over a defined period of time and analyse the results for the levels of profitability and risk.
If the results meet the necessary criteria that are acceptable to the trader, the strategy can then be implemented with some degree of confidence that it will result in profits. If the results are less favourable, the strategy can be modified, adjusted and optimized to achieve the desired results, or it can be completely scrapped.
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Duration: 14 minutes
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