How to read a trading backtest without fooling yourself
What a backtest can tell you, what it cannot, and the five questions to ask before trusting any equity curve, including ours.
A backtest replays a strategy's rules over past prices and shows what would have happened. It is the best tool we have for judging a strategy before risking money, and it is very easy to misread.
Five questions to ask
- Was any of the history kept aside? Rules chosen and tested on the same data always look better than they are.
- Is the drawdown measured with open trades? A curve drawn only from closed trades hides the deepest dips.
- Are costs included? Spread, slippage and commission can turn a good backtest into a flat one.
- Is it compounded? Reinvesting profits makes any curve look spectacular.
- How many trades? A few dozen trades prove very little.
How we show ours
The backtest in the Arrissa.trade app uses real Exness tick data with the spread included, the same lot table as the live bot, the news filter on, and fixed lots without reinvesting profits. It reports the deepest dip with open trades marked every minute, not only the fall after trades close. It is extended every day with the market data our servers record.
How to use it well
Use the backtest to understand how the strategy behaves: how often it trades, how deep its dips go, how long a quiet spell can last and how each risk temperature changes the picture. That is exactly what it is best at.
Like every strategy, ours was built on past data, so we keep checking it on data it has never seen. Every new trading day is added to the backtest automatically, which means the record keeps growing with fresh, untouched market history. Think of the numbers as a guide to the character of the strategy rather than a promise of a particular profit.
- 1Real tick data with the spread
- 2Costs and slippage included
- 3Drawdown measured every minute
- 4Fixed lots, no compounding
- 5Hundreds of trades, many years
- 6Out-of-sample and start-date tests
- 7Forward results on a demo
Go deeper
- Sharpe, Sortino and Calmar ratios: how much return you get for the risk you take.
- Profit factor and expectancy: whether each trade is worth taking.
- Out-of-sample and walk-forward tests: how to tell a real edge from a lucky fit.
Read next: Sharpe ratio explained: return for the risk you take
Start the bot, watch your free $10,000 demo trade, and connect your Exness account when you are ready.
Risk warning. Trading leveraged products such as CFDs carries a high risk of losing money. Backtest figures are simulations, not real results, and past performance does not guarantee future results. Read the risk disclosure before you connect an account. Nothing here is financial advice.