What is Backtesting? 3 Aims of Backtesting
Undеrstanding thе Purposе and Bеnеfits of Backtеsting in Trading
Backtesting is Trial testing or mock examination of your trading strategy. It helps find weaknesses of Faults left in the strategy. There are multiple ways to backtest the Strategy, one of which is Trading Bot Backtesting. Thorough testing of the strategy is Highly recommended. Simple because it provides a solid litmus test for your strategy, Helps it improvise.

 All of this practice make your Trading strategy more robust and Powerful. There are 3 Main Aims or purposes to do backtesting - Desired results in real market conditions:
  • Does your strategy achieve the desired result in real market conditions?
  • Backtesting finds out Mistakes / Weak points that Need improvement for better results.
  • Performance data for Different market types.

1) Performance in Similar Market Conditions

 For example, let's say one of the key factors of your strategy is to buy the shares of "Tata Infocom" when the price falls by 6% in one day. Here's what backtesting will do now - It will find the most similar event from the historical market of Tata Infocom when the price fell by 6% within a day.

Then the backtesting will implement your strategy on that past market condition. Within seconds, it will update you on how your strategy performed.

You would clearly get to know how your built strategy is responding to most similar market conditions. This can be really helpful. Because the condition used for backtesting is heavily similar to what you might come across in the current live market.

2) Detecting Mistakes in Trading Strategy

There are multiple methods available to backtest the strategy. Doing that precisely finds out minor to major loopholes or Loose ends left in the Trading Strategy.

For example, Let's say your strategy is to invest 5,000 /- rupees when the stock price increases by 3% in a Day. Upon doing this, You entered the Trade at a 3% Higher price & the price started declining after reaching a 4% increase. What does this mean? It means you entered the Trade late and Missed out on the chance of profit. While also have to face some loss in Trade.

Backtesting helps you avoid such scenarios in real-time markets. This was just one example shown here. Backtesting works way deeper than this, Finds out every nook and cranny where the Strategy can be improved to achieve better results.  

3) How does your Strategy fare for other Market Types?

You might have created your strategy for stocks or Options or any one particular segment of the market. Now, how about testing this out for Multiple other market types? Trends, F&O etc. Your trading strategy might as well be designed keeping one particular market segment in mind. By doing backtesting, you can clearly see how will the same strategy performs for other Trading options.

Some minor to major tweaks might be suggested for other trading options. This is sensible because your strategy was not designed for other segments. Making those minor changes will make your strategy stronger & great fit for those other Market options as well.

Whatever improvements are needed, backtesting will thoroughly rectify the strategy.

#How To Exactly Do Backtesting?

There are multiple methods available to perform Backtesting of strategy:
  • Coding Libraries
  • Trading Softwares
  • Manual Backtesting (Pen & Paper approach)
  • Trading Bot Backtesting (Best method for Backtesting)

All these methods were developed over the Period of time and Has their own complexities & Limitations. Trading Bot Backtesting has been generating a High amount of successful results & has started being used widely as well.

Trading Bot Backtesting provides you with your own customized, personal Trading Bot. A great technologically built Bot with outstanding capabilities.

This type of Backtesting can be especially Beneficial & provide Extremely satisfying results When supported by SpeedBot Backtesting Engine.

#Special Benefits when you choose Trading Bot Back-testing?

Platforms like SpeedBot will let you create your personal trading bot first. Then you can this trading bot for Details, customized and Personal backtesting. Exactly per your requirement.

This type of Personalized trading Bot gives you Unique benefits over other backtesting methods. It also works better by overcoming the limitations of the Old-school backtesting methods.

SpeedBot Backtesting Engine also adds to the power of Trading Bot backtesting really well. Trading Bots for backtesting fetches all individual details from your Trading strategy. After that, the Trading bot performs extremely curated & very very close to Live trading like backtesting. Eventually providing a much much better analysis of Strategy at the end.
So you get a very clear view of Where the Strategy can be improved and What changes need to be made to achieve Really good results. While the SpeedBot Backtesting Engine powers your Strategy testing to another level. Cutting-edge tech-built Backtesting Engine provides deep & thorough Strategical testing. It is Fed with lots of Historical data and Built with Artificial Intelligence (AI), Machine Learning (ML) technologies.   


What is Backtesting? 3 Aims of Backtesting
SpeedBot Team 21 July, 2022
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