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Risk and mindset · 3 min
Backtesting: test on past data first
Before trying a strategy with real money, see how it would have done over past years.
What to look at
Total return, win rate, the biggest drop (drawdown) and number of trades. Looking at return alone is incomplete.
Pitfalls
Tweaking settings until they fit only the past (overfitting) fails later. Test on other stocks and periods too.
Past results ≠ future results
A backtest is only an estimate. Markets change, so try it in paper trading too.
Quiz (3 questions)
1. What is drawdown?
2. What is overfitting?
3. Does a good backtest guarantee future profit?
This is for learning only, not advice on any stock or trade.