Backtesting is an important part of financial analysis as it gives investors a tool for evaluating the profitability of a particular trading strategy.
What is a Backtest?
- Backtesting is a software tool for predicting a strategy’s performance.
- Traders can simulate many different trading strategies using past data.
- Backtests allow you to test a trading strategy before it goes live.
- Quadency’s Smart Suggest takes backtesting to a new level.
What is Backtesting in Trading?
A backtest creates a predictive model that is based on historical data. As a software trading tool, backtesting allows traders to simulate a trading strategy’s performance using data from a previous time frame. A test can be run before the portfolio strategy goes live and funds are committed.
Pros & Cons of Backtesting
- Backtesting lets traders estimate a strategy’s performance. If it worked in the past in similar market conditions, it has a good chance of working again.
- Once available only to investment banks and money managers, free backtesting software is widely available today, including at Quadency!
- When traders backtest, they get to analyze data via charts, historical market movements, patterns, and technical indicators to get an edge in crypto markets.
Having a backtest feature at your trading terminal means you can easily test and refine your strategies (often for free!).
- Financial backtesting is limited by the potential for curve fitting, or overfitting, meaning models that work in the past may not necessarily work in the future.
- Success is dependent on market conditions, i.e. liquidity. If the future markets experience unexpected macro events or liquidity is reduced, the backtested strategy may not hold up in a future time frame.
Overall, backtesting provides data for traders to use when adjusting their portfolio in order to maximize returns and minimize risk.
Turbo charge your backtesting with Quadency’s Smart Suggest
How to Perform a Backtest on Your Trading Strategy
With smart trading terminals like Quadency, a backtest is just a few clicks away. The following trading strategies can be set up easily on the Quadency platform:
- Multi-level RSI
- Mean Reversion
- Bollinger Bands
Choose which strategy you want to use. Before it goes live, run the backtest to evaluate the past performance of your strategy with these simple steps:
- Go to your Quadency Dashboard.
- Select your Bot Strategy.
- Configure the bot for starting capital, market, and other parameters.
- Set up the profit target and stop loss.
- Click “Run Backtest” and wait a few moments for the test to run.
- When done, review the backtest summary and logs to understand why the bot performed well.
For all of the bots listed above, Quadency users can run up to 10 free backtests per day, making it a valuable tool for technical analysis. Traders with higher trading volumes can run hundreds of daily backtests, or more!
How to up your backtesting game with Smart Suggest
Smart Suggest allows traders to take backtesting to the next level.
- Powered by Quadency’s Hyper-Parameter Optimization Engine, Smart Suggest can process thousands of backtests daily using different parameter combinations for each bot.
- Negative results are discarded while profitable strategies (including those used by Quadency users) are fine-tuned to adapt to the crypto market’s fast-changing market conditions.
Always remember that while backtesting is a great way to make use of technical indicators, combining it with fundamental analysis and other indicators will help give you a more comprehensive picture of an assets future potential.
- Join Quadency to Access Free Backtesting Software!
- Read our Guide to Custodial vs. Non-Custodial Crypto Wallets
- Discover QUAD tokens and start staking!
Quadency is a cryptocurrency portfolio management platform that aggregates digital asset exchanges into one easy-to-use interface for traders and investors of all skill levels. Users access simplified automated bot strategies and a 360 portfolio view with a free account.
Disclaimer: The content of this article is for general market education and commentary and is not intended to serve as financial, investment, or any other type of advice.