Module 27: Backtesting
Key Takeaways
- Backtesting checks whether a strategy worked historically.
- Win rate alone is meaningless without R:R.
- Expectancy tells you the average profit per trade.
Historical testing
Backtesting means applying your exact rules to past price data to see how they would have performed. Use TradingView’s bar-replay or a spreadsheet, scrolling candle by candle and logging each trade your rules would have taken — without peeking ahead.
Win rate
Win rate is the percentage of winning trades. Crucially, it must be paired with risk-to-reward. A 40% win rate at 1:2 is profitable; a 70% win rate at 1:0.3 may lose money.
Strategy improvement
Calculate expectancy: (Win% × AvgWin) − (Loss% × AvgLoss). Positive expectancy = a profitable edge. Test across different market conditions, refine one variable at a time, and beware over-optimisation (curve-fitting to past data). Then forward-test on a demo before going live.
Past performance doesn’t guarantee future results. Backtesting builds confidence and reveals flaws, but markets change — keep validating with live data.
Frequently Asked Questions
At least 100 across varied conditions for statistically meaningful results.