Building Automated Trading Strategies October 2018 | Page 42

CHAPTER-7: BACKTESTING & OPTIMIZING
AUTOMATED TRADING STRATEGIES
Backtesting is a computerized process that tests how a trading strategy has
performed during a past period. This process involves reconstructing trades
that would have occurred during a past period using historical data.
Backtesting Your Automated Strategy
The Backtesting Process
Backtesting is a key process during the development of any efficient trading-
strategy. There are several benefits occurring during the process of
backtesting trading strategies:
✓ Fast evaluation of multiple strategies
Backtesting allows testing a great variety of trading strategies against
normal and abnormal market conditions including factors such as
variable spreads, slippage, latency, etc.
✓ Choosing among different strategies
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