What is Backtesting?
Backtesting is the process of testing a trading strategy using historical price data to see how
it would have performed in the past. This helps you validate strategies, optimize parameters,
and build confidence before deploying real capital.
Why Backtesting is Critical
- Validate Strategy: Prove your strategy works before risking money
- Optimize Parameters: Find best grid size, multiplier, take profit %
- Understand Drawdowns: See maximum losses you might face
- Build Confidence: Trade with data-backed conviction
- Save Money: Avoid costly mistakes from untested strategies
- Compare Strategies: Test multiple approaches to find best one
What Backtesting Shows You
| Metric |
What It Tells You |
Good Target |
| Total Profit |
Overall strategy profitability |
Positive return |
| Win Rate |
% of profitable trades |
70%+ |
| Max Drawdown |
Largest peak-to-trough loss |
<30% |
| Avg Trade Profit |
Profit per completed round |
Positive |
| Total Trades |
How active the strategy is |
50+ trades |
| Sharpe Ratio |
Risk-adjusted returns |
>1.0 |
How to Backtest Effectively
1. Choose Time Period
Test across different market conditions:
- Bull Market: Rising prices (2020-2021)
- Bear Market: Falling prices (2022)
- Sideways Market: Range-bound (2023)
- Volatile Period: High price swings
2. Select Trading Pair
Start with major pairs that have historical data:
- BTC/USDT - Most stable, longest history
- ETH/USDT - Good volatility, reliable
- BNB/USDT - Exchange token, consistent
3. Set Initial Parameters
Start with conservative settings:
- Grid Size: 5-10 levels
- Grid Spacing: 2-5%
- Multiplier: 1.5x - 2x
- Take Profit: 1-3%
- Initial Balance: $1,000
4. Run Multiple Tests
Test variations to optimize:
- Different grid sizes (5, 10, 15, 20)
- Different multipliers (1.5x, 2x, 2.5x)
- Different take profit % (1%, 2%, 3%)
- Different time periods
Pro Tip
Run at least 3 backtests: one in a bull market, one in a bear market, and one in
sideways conditions. If your strategy is profitable in all three, it's likely robust.
Example: Backtest Results Analysis
| Parameter Set |
Total Profit |
Win Rate |
Max Drawdown |
Rating |
| 10 grids, 2x, 2% TP |
+$450 |
85% |
-18% |
⭐⭐⭐⭐⭐ Best |
| 5 grids, 2x, 3% TP |
+$280 |
78% |
-12% |
⭐⭐⭐⭐ Good |
| 15 grids, 2.5x, 1% TP |
+$520 |
82% |
-35% |
⭐⭐⭐ Risky |
| 20 grids, 3x, 1% TP |
-$120 |
75% |
-52% |
❌ Avoid |
Analysis: 10 grids with 2x multiplier and 2% take profit offers best balance of
profit and manageable drawdown.
Common Backtesting Mistakes
- Overfitting: Optimizing too much for past data (won't work in future)
- Cherry Picking: Only testing favorable time periods
- Ignoring Fees: Not accounting for trading fees in results
- Too Short Period: Testing only 1-2 weeks (need 3+ months)
- No Slippage: Assuming perfect fills at exact prices
- Survivorship Bias: Only testing pairs that still exist
Interpreting Results
Good Backtest Results:
- ✓ Consistent profits across different time periods
- ✓ Win rate above 70%
- ✓ Max drawdown under 30%
- ✓ Positive profit after fees
- ✓ 50+ completed trades for statistical significance
Red Flags:
- ✗ Profitable in bull market only
- ✗ Max drawdown over 50%
- ✗ Win rate below 60%
- ✗ Very few trades (under 20)
- ✗ Inconsistent results across periods
From Backtest to Live Trading
- Backtest: Test with historical data
- Paper Trade: Test with live data, fake money (1-2 weeks)
- Small Live: Deploy with 10-20% of intended capital (1 month)
- Full Live: Scale up to full position size
- Monitor: Track live performance vs backtest expectations
- Adjust: Tweak parameters based on live results
Our Backtesting Platform
Our platform offers comprehensive backtesting with:
- Historical data for 100+ trading pairs
- Multiple years of 5-minute candle data
- Realistic fee calculations
- Detailed performance metrics
- Visual equity curves and trade logs
- Parameter optimization tools
- Export results for analysis
Start Backtesting Today
Test your strategies before risking real money.
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