Backtesting

In this section, I’m going to present to you an efficient way to backtest a trading technique. It’s not meant to be perfect, you aren’t doing it automatically via an algorithm using multiple conditions, but it does its job, and it separates strategies that might not work from the strategies that might work.

You’ve identified a potential trading pattern and defined it as a strategy. You know its filters, the setup, the entry trigger, the stop loss point, and the take-profit point(s), and you have some ideas on how to improve it.

Now it’s time to see how well it worked in the past.

In order to do this, you need to have a period where the market was in an uptrend, a period when it was in a downtrend, and a period when it was in a sideways trend. These periods should be of the same range and in the same timeframe as your strategy.

For example, you could look at the BTC/USDT pair during 2020-10-04 – 2021-01-09 (around 3 months...