Backtest

Backtesting is the process of testing a trading strategy using historical data to determine the effectiveness of that strategy. Backtest results usually show the strategy’s performance in terms of some popular performance statistics like Sharpe Ratio, Sortino ratio, which help to quantify the strategy’s return on risk. If the results meet the necessary criteria, the strategy can be implemented with some reasonable degree of confidence. If the results are less favorable, the strategy can be modified, adjusted and optimized to achieve a desirable result.  There are mainly two forms of backtesting systems: Research Backtesting and Event-Driven backtesting.