What are the drawbacks of any strategy tester?

<p>Strategy testers, although useful for evaluating and refining trading strategies, have several drawbacks. Firstly, they rely on historical data, which can be limited in terms of accuracy and representativeness of real market conditions. Secondly, there is a risk of over-optimization, where strategies are excessively tailored to fit historical data but may perform poorly in live trading due to the phenomenon known as "curve fitting." Thirdly, strategy testers do not incorporate real-time factors such as market volatility, news events, and slippage, which can significantly impact a strategy's performance in a live trading environment. Additionally, strategy testers often make assumptions and simplifications that may not hold true in reality, such as the execution of trades at requested prices without considering transaction costs. Furthermore, strategy testers cannot predict future market conditions accurately, and they do not account for emotional and psychological factors that can influence human traders' decision-making. To make well-informed trading decisions, strategy testers should be used in conjunction with other analysis techniques and considerations.</p>

<p>Backtesting is not a perfect or foolproof method of testing your trading strategies and has some limitations and challenges that you need to be aware of. For example, it can be prone to overfitting and curve-fitting due to using too many parameters, indicators, or filters or optimizing the strategy too much to fit the data. Additionally, data quality and availability can affect the results of backtesting, as inaccurate, incomplete, or outdated data may not reflect actual market conditions. Furthermore, hindsight and confirmation bias can influence your strategy if you cherry-pick data, time frames, or markets or ignore or rationalize losses or errors.</p>