Backtest

Glossary · Quant & Stats

A backtest runs a trading strategy's exact rules against historical data to estimate how it would have performed, producing metrics like win rate, expectancy, and maximum drawdown before real money is risked. A backtest cannot prove a strategy works — it only shows the rules didn't fail in the past under the assumptions tested.

"If you haven't backtested it, you're not trading a strategy, you're trading a mood."

A usable backtest needs rules precise enough that two people would take identical trades, realistic costs, and enough samples. Costs are where edges quietly die: 0.05% taker fees paid twice plus slippage is roughly a 0.15% hurdle per round trip, and on perps funding can add or subtract more. Aim for 100+ trades minimum, test across different regimes — 2021 trend, 2022 bleed, sideways chop — and hold back a chunk of data the rules never saw.

The classic ways a backtest lies: lookahead bias (a rule secretly using information from the candle it trades inside), survivorship bias (testing today's top-50 list on old data skips every coin that died), and fitting parameters to the exact past. Working assumption from the desk: live performance comes in around half the backtest, and if the edge vanishes when a parameter moves 20%, there was no edge — just a curve wearing a strategy costume.

How our own backtests are run, nulls included

Related jargon

Questions

What is Backtest in crypto trading?

A backtest runs a trading strategy's exact rules against historical data to estimate how it would have performed, producing metrics like win rate, expectancy, and maximum drawdown before real money is risked. A backtest cannot prove a strategy works — it only shows the rules didn't fail in the past under the assumptions tested.

How would a trader say it?

If you haven't backtested it, you're not trading a strategy, you're trading a mood.

Part of the Crypto Jargon glossary — every term, decoded the way a trader would say it.

Crypto Jargon

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