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<p id="isPasted">Traders who are eager to try a trading idea in a live market often make the mistake of relying entirely on backtesting results to determine whether the system will be profitable. While backtesting can provide traders with valuable information, it is often misleading, and it is only one part of the evaluation process.</p><p>Out-of-sample testing and forward performance testing provide further confirmation regarding a system's effectiveness and can show a system's true colors before real cash is on the line. Good correlation between backtesting, out-of-sample, and forward performance testing results is vital for determining the viability of a trading system.</p>
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<p id="isPasted">Backtesting historical data does not guarantee future profitability. While it is an essential tool for evaluating a trading strategy's potential, it is a simulation based on past performance, and past performance is not a reliable indicator of future results. However, when done robustly, backtesting can increase your confidence in a strategy and help you find an edge in the market. </p><p><br></p>
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