In other words, it depends on a few different factors.<\/em><\/p>\n Let's dive into what you should know about backtesting and how long you should do it.<\/p>\n It all begins with defining our terms…<\/p>\n The first thing that I have to clarify is the what is meant by “long” because there can be some confusion here.<\/p>\n There are different interpretations of this word, so here are the definitions that I'm going to cover in this post.<\/p>\n When we look at the 3 definitions, we realize that “long” can mean entirely different things.<\/p>\n So I'll address each one to clear up any confusion, and show you which ones really matter.<\/p>\n Like with many things in life, the amount of time that you spend on backtesting isn't an indicator of the quality of work that was done during that time.<\/strong><\/p>\n Therefore, the idea that you have to spend a minimum amount of time backtesting is not useful.<\/p>\n In an extreme example, you could backtest for 4 months, but only have 2 backtested trades.<\/p>\n That wouldn't tell you anything about how profitable the trading strategy<\/a> is.<\/p>\n So when you're looking for a minimum amount of backtesting to prove a trading strategy<\/a>, you need to throw out the idea that the act of backtesting should be done for a certain period of time.<\/strong><\/p>\n Another way to measure the amount of backtesting a trader does is to track the amount of historical data used in the test.<\/p>\n In other words, you could backtest a system over 3 years or 30 years of historical data.<\/p>\n Obviously, more data is better.<\/em><\/p>\n When you have a lot of historical data, you'll know how your trading strategy would have performed over many different market cycles.<\/strong><\/p>\n This is very important in finding out if you have robust trading strategy or if your trading strategy only works in certain market conditions.<\/p>\n For example, if your trading strategy wasn't tested during the 2007 financial crisis, you wouldn't know what would happen in an extremely volatile market.<\/p>\n So while the amount of historical data you use to do your backtest is an important factor in determining a valid test, there's one more things that you have to consider…<\/p>\n That brings me to the final backtesting measurement…<\/p>\n The most useful metric to look at is the total number of backtested trades.<\/strong><\/p>\n If you tested a trading strategy over 300 trades, that would be a lot more reliable than if you tested the strategy over only 10 trades.<\/p>\n That's pretty obvious.<\/p>\n But what's not so obvious is the minimum number of trades that will give you confidence in the system you're testing.<\/em><\/p>\n There can be a gray area where you're not sure if you have enough trades in your test.<\/p>\n When you're in doubt, zoom out and consider the bigger picture.<\/p>\n If you only test 100 trades, then you might only have 2-3 months of data. That's not nearly enough to get a good idea of if the strategy is reliable or not.<\/p>\n Even 500 trades might not be enough.<\/p>\n You don't necessarily have to test every single day for the past 20 years, but you should have samples from different market conditions.<\/p>\n There should be trades from:<\/p>\n The more trades you have from each of these types of markets, the more confidence you'll have in your strategy.<\/p>\n With a swing trading strategy, you might have a relatively low number of trades in your backtest.<\/p>\n For example, let's say that you backtested the RSI Divergence trading strategy<\/a> on the daily chart of the EURUSD.<\/p>\n With this trading strategy, you might only get 25 trades over 20 years.<\/p>\n So does that mean that you throw out the strategy, even if it was profitable?<\/p>\n Of course not.<\/p>\n But you might not have enough confidence in it to trade it live.<\/p>\n In that case, it's important to forward test the strategy until you get to a point where you're confident that the strategy works.<\/strong><\/p>\n Forward testing<\/a> will take some time.<\/p>\n But it's the best way to gain confidence, when you have only have small amount of data.<\/p>\n You could also test the strategy on other markets and timeframes.<\/p>\n If you find other instances where the strategy works, that can also give you more validation that the strategy is reliable.<\/p>\n There's a meme on the internet that you need a minimum of 100 backtested trades<\/a> to prove that a strategy works.<\/p>\n That's simply not true.<\/em><\/p>\n 100 trades is nice number of trades to have.<\/p>\n But again, the number of trades you have in a test only tells you part of the story.<\/p>\n Here's what you need to know about the 100 trades myth…<\/p>\nThe Definition of “Long”<\/h2>\n
\n
Length of Time Spent Backtesting<\/h2>\n
Amount of Historical Data Used<\/h2>\n
![\"backtesting](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/backtesting-screen.png\")
How Many Times Should You Backtest a Trading Strategy?<\/h2>\n
Think about a day trading strategy…<\/h3>\n
\n
Now consider a swing trading strategy…<\/h3>\n
![\"Backtesting](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/backtesting-trades-example.png\")
<\/p>\nThe 100 Trades Myth<\/h2>\n