Skip to content
Risk warning: Our products are leveraged and carry a high level of risk, which can result in the loss of your entire capital. Such products may not be suitable for all investors. It is crucial to understand the risks involved fully.
  • Support
  • For Institutionals
  • Trading

    Trading Platforms

    • MetaTrader 4 Terminal
    • MetaTrader 5 Terminal
    • PAMM Accounts
    • Equinix Trading Server

    Markets coverage

    • Forex Currencies
    • Spot Metals
    • Commodities

     

    • CFDs on Stocks
    • Indices
    • CFDs on Crypto

    Start Trading

    • Standard Accounts For individuals
    • Institutional Account For professionals
    • Deposits & Withdrawals
  • Conditions

    Trading Conditions

    • Spreads Overview
    • Swap-Free
    • Leverage Information

     

    • CFD Specifications
    • Full Trading Conditions

    Invest on your terms

    Transparent pricing, reduced trading costs, and leverage that adapts to your strategy.

    Explore conditions
  • Tools
    • Weekly Outlook
    • Daily Technical
    • Market Commentary
    • Economic Calendar
    • News & Insights
  • About
    • About OnEquity
    • Company News
    • Legal Documentation
    • Client Protection
    • Help & Support
    • FAQs
  • Partners
Edit Content
  • English
    ACTIVE
Other languages:
  • Español – Spanish
  • Português – Portuguese
  • English – International
  • Trading
    • Markets Coverage
    • MetaTrader 5 Platform
    • MetaTrader 4 Platform
    • Standard Accounts
    • Institutional Account
    • PAMM Accounts
    • Equinix Trading Server
    • Deposits & Withdrawals
  • Conditions
    • Spreads Overview
    • Leverage Information
    • Swap-Free Trading
    • CFD Specifications
    • Full Trading Conditions
  • Tools
    • Daily Technical
    • Weekly Outlook
    • Market Commentary
    • Economic Calendar
    • News & Insights
  • About
    • About OnEquity
    • Company News
    • Legal Documentation
    • Client Protection
    • Help & Support
    • FAQs
  • Partners
  • Client Portal
  • Open Account
Edit Content
  • English
    ACTIVE
Other languages:
  • Español – Spanish
  • Português – Portuguese
  • English – International
Open Account
Client Portal
Beginner, Education

Learn Backtesting: Test Your Strategies Without Risking Real Money

April 17, 2025 OnEquity

Learning about backtesting will give you the option of discovering a powerful tool for testing your strategy in the world of trading. In this way, you will be able to improve the results of your operation, such as reducing risk and profitability.

Backtesting uses information from the past to predict possible future results. For this reason, we will tell you more about this software, so that you can use it before modifying your strategy or implementing a new one.

Read on and find out what backtesting is, how it works, the different types and where you can use this tool.

What is backtesting?

It is a tool that works to test the effectiveness of a strategy in the world of trading before it is implemented. This kind of software makes use of historical information, that is, data on the price movements of an asset; the objective of this is to be able to simulate the scenario that would have happened in terms of buying, selling and profitability when using that specific strategy.

It is one of the most useful tools for traders, as it allows you to know how effective the strategy would have been. The advantage is that it can be verified with real data from the past; therefore, there are enormous possibilities of replicating the results, if they turn out to be positive.

How does backtesting work?

Traders rely on backtesting in order to test different strategies or trading styles without having to risk money, something very similar to what happens with paper trading. For this reason, it is an excellent way to anticipate the probable result of the operation that is planned to be carried out. Similarly, it will serve as part of the process either to create or improve the strategy.

The main approach in backtesting is essentially that if a strategy performed poorly in the past, it is very unlikely to perform adequately in the future. The same is true in the opposite case: if a strategy has performed well in the past, there is a good chance that the same will happen in the future.

It is important to define the criteria to be analyzed prior to doing a backtesting. This means that it must be established whether you want to analyze profitability at a general level, by operation; number of losses or level of risk, to mention some criteria.

Types of Backtesting

There are two ways of doing backtesting; these basically depend on the way they are implemented.

Below we present the two types of backtesting that exist:

Manual backtesting

This type of backtesting requires a lot of work because no software is used to carry it out. It consists of using historical data from a trading platform and analyzing it. Although experience is needed, starting with this type of backtesting can be very useful to become familiar with the price movements of the assets and the probable results that decisions could have when trading.

Automatic backtesting

If at any time you plan to try out different strategies or a large number of modifications within those you already have, the best option is to make use of automatic backtesting. This is possible because this software can analyze an enormous amount of information in short periods of time. In this way, the testing work will be simpler and it will be possible to check more quickly how effective the strategies are likely to be.

Why do backtesting?

It can be of great help in confirming the probability of success of the strategy. Although it is a tool that many consider for beginners, experienced traders can also benefit from this software. It is vital to consider that the market is constantly changing, as are the financial situation and needs, so whenever there is a change in strategy, it is highly advisable to test it with backtesting or a trading simulator.

Where to do backtesting?

Depending on the type of financial market you want to operate in, there are a large number of platforms that provide tools such as backtesting or simulators.

It is important to understand that, although backtesting is an excellent option for checking the results of the strategy, there is no guarantee of one hundred percent effectiveness. The market is in constant motion and can be affected by different factors. Therefore, it is advisable to apply risk management to limit the risk of loss.

Backtesting vs. Paper Trading

Now that we have a general idea of what backtesting is and we have explored a simple investment strategy, we also know that past performance is no guarantee of future results.

So how can we optimize a systematic strategy for current market conditions? One option is to test it in a live environment without risking real money, which is known as paper trading or forward performance testing.

Paper trading consists of simulating a strategy in a real-time trading environment. Although the operations are recorded and analyzed, no real funds are used. This allows the performance of the strategy to be evaluated and improvements to be made before it is applied in the market with real money.

However, you have to be careful about cherry-picking, that is, selecting only the data that confirms a personal bias. The purpose of paper trading is to evaluate the strategy objectively, as if you were trading in real time. If the system indicates a trade, it is important to execute it rather than choosing only those that “look good”. Otherwise, the test will not be valid and could give a false sense of effectiveness.

Conclusion

It is important to approach backtesting with caution and to recognize its possible limitations. Historical data is unlikely to be a perfect reflection of future market conditions, and the assumptions made during the process should be examined carefully. It should be used as a complementary tool, together with other forms of analysis, whether technical or fundamental, as well as good risk management, to improve both strategies and decision-making.

  • Backtesting
  • Beginner
  • Education

Post navigation

Previous
Next

Search

Categories

  • Analysis (217)
  • Beginner (24)
  • Cryptos (145)
  • Currencies (188)
  • Daily Technical (147)
  • Education (64)
  • Expert (23)
  • Intermediate (17)
  • Markets (434)
  • News & Releases (22)
  • Stocks (290)
  • Uncategorized (1)
  • Weekly Outlook (69)

Recent posts

  • Trading Hours Update – Additional Changes for August 2025
  • Today’s stocks to watch: Berkshire, Boeing, and Amazon
  • U.S. stock futures rise on heightened hopes for interest rate cuts

Tags

Analysis Bitcoin Cardano CPI Crypto Cryptocurrencies Currencies Daily Dollar earnings Education Elections ETF ETFs Ethereum Euro Fed Index inflation Litecoin Market Markets Nasdaq oil Outlook Pound Ripple SEC Solana Stablecoin Stock Market Stocks Stocks Market Stocks today Technical Technical Analysis Technology Tether Trading Trump Wall Street Weekly Weekly Outlook Yen Yuan

Related posts

Education, Intermediate

Forex 101: What Every Trader Should Know About Currency Pairs

June 26, 2025 OnEquity

In the foreign exchange (forex) market, all transactions involve the simultaneous exchange of one currency for another. This is why currencies are always quoted and traded in pairs—when you buy one currency, you are inherently selling another. A currency pair reflects the value of one currency relative to another. For example, in the EUR/USD pair, […]

Beginner, Education

Decoding Liquidity: The Key to Smarter Trading

June 19, 2025 OnEquity

Understanding liquidity is essential for identifying optimal markets in which to buy and sell financial assets. In trading, liquidity measures how easily an asset can be exchanged between participants without causing significant price movement. High liquidity typically reflects a more efficient market—where buyers and sellers are readily available, enabling smooth and timely transactions. This article […]

Beginner, Education

The Power of Supply & Demand: Unlocking Trading Opportunities

June 12, 2025 OnEquity

In the world of trading, mastering the concepts of supply and demand is not only an advantage, but a necessity. These two fundamental forces are responsible for price movements in financial markets and, if you know how to interpret them correctly, they can become powerful tools for making more accurate and profitable decisions. Throughout this […]

  • Privacy policy
  • Client agreement
  • Legal
  • Support
  • +2484671965
  • [email protected]
  • Chat with us
Company
  • About us
  • Regulation
  • Safety of funds
  • Company news
  • Insights
  • FAQ
Account options
  • Standard accounts
  • Institutional account
  • PAMM accounts
  • Swap-free account
Conditions
  • Spreads overview
  • Leverage tiers
  • CFD specifications
  • Markets coverage
Trading tools
  • MetaTrader 5
  • MetaTrader 4
  • Equinix trading server
  • Economic calendar
  • Daily technical
  • Weekly outlook
  • Market commentary
OnEquity Ltd is incorporated in Seychelles as a Securities Dealer with License No. SD154, authorized by the Seychelles Financial Services Authority (FSA), adhering to the Consolidated Securities Act, 2007. Registration No. 810588-1.

The website is operated and provides content by the OnEquity group of companies, which include:

OnEquity SA (Pty) Ltd, incorporated in South Africa, Company reg. 2021/321834/07, regulated by the Financial Sector Conduct Authority (FSCA) with FSP No. 53187.

OnEquity LLC, recognized by the Registrar of International Business Companies and the Financial Services Authority in St. Vincent and the Grenadines, Registration No. 286 LLC 2020.

ONEQ Global Ltd, registered in Cyprus, Company reg. HE 435383, located at Agias Zonis 22, Limassol, focusing on comprehensive service solutions within the OnEquity Group.
Risk Disclosure: Trading in financial instruments involves substantial risk and may not be suitable for all investors. The value of investments is volatile and can result in total loss of capital. Investors should consider their financial situation, investment experience, and risk tolerance, and may seek professional advice. Past performance is not indicative of future results.

Eligibility: Services are available to individuals 18 years or older.

Restricted Jurisdictions: The content provided by OnEquity is not intended for residents of the United States, Canada, North Korea, Yemen, Iran, Belgium, Syria, or any jurisdiction where such distribution or use would be contrary to local law or regulation.

All trademarks™ and brand names belong to their respective owners and are used here for identification purposes only. Use of these names does not imply endorsement.
© OnEquity. All Rights Reserved.