Backtesting and forward testing

Backtesting

Backtesting replays historical data through a strategy with your risk settings applied, so the equity curve reflects the sizing you would actually have used.

• Pick the instrument, the period and the risk settings to apply.
• Results show the trade list, equity curve, max drawdown and expectancy.
• Spread and commission assumptions are part of the run — change them and the curve changes, which tells you how fragile the edge is.

Forward testing

Forward testing runs the same logic on live incoming data without sending orders. Slower than a backtest, and much harder to fool.

Reading the result

• Look at max drawdown before you look at profit. That is the number you have to live through.
• A curve that only works on one instrument in one year is a coincidence, not a strategy.
• Compare against doing nothing, and against a flat fixed-size version of the same trades.