{"id":1025749,"date":"2024-06-20T02:04:53","date_gmt":"2024-06-20T09:04:53","guid":{"rendered":"https:\/\/www.tradingheroes.com\/?p=1025749"},"modified":"2025-07-25T14:58:18","modified_gmt":"2025-07-25T21:58:18","slug":"good-backtesting-result","status":"publish","type":"post","link":"https:\/\/www.tradingheroes.com\/good-backtesting-result\/","title":{"rendered":"What is a Good Backtesting Result?"},"content":{"rendered":"

When you buy something through one of the links on our site, we may earn an affiliate commission.<\/div><\/p>\n

“Well duh, a good backtesting results is when you make 1,000,000% return.”<\/p>\n

That's what many new traders think and that's why over 90% of traders fail.<\/p>\n

If you want to become a successful trader, you're going to have to learn how properly evaluate a trading strategy and adjust your perception of what is a good backtesting result.\u00a0<\/strong><\/p>\n

Spoiler alert: Most successful trading strategies start off as mediocre or even poor.\u00a0<\/em><\/p>\n

But through continual testing and iteration, they are made into<\/em> profitable strategies.<\/p>\n

Just like successful traders are made, not born…successful strategies require an investment of time and effort.<\/p>\n

Where to Start<\/h2>\n

The first thing to understand about backtesting is that almost all successful trading strategies didn't start out that way.\u00a0<\/strong><\/p>\n

A great trading strategy is just like any great invention.<\/p>\n

It starts with an idea and the inventor wants to solve a problem.<\/p>\n

Traders want to solve the problem of making money consistently in the markets.<\/p>\n

You will probably have to refine your trading strategy idea to make it profitable.<\/p>\n

Once you understand that trading strategies rarely start off as profitable, it then makes sense that breakeven backtesting or slightly profitable results can actually be a good thing.\u00a0<\/strong><\/p>\n

If a strategy is breakeven (or close to it), then you just might have to do a few tweaks to get it to profitable.<\/p>\n

Many times, experimenting with money management or exits can make a strategy profitable.<\/p>\n

With that in mind, here are more details on what to look for in your testing results.<\/p>\n

Historical Data Used in Backtests<\/h2>\n

Before I get into analyzing your actual backtesting results, one important thing to consider is how much historical data was used in your backtests.<\/p>\n

Many backtesting platforms only give you 1 or 2 years of backtesting data.<\/p>\n

This is not nearly enough to figure out how a strategy will perform over different market conditions and cycles.<\/p>\n

So when you're backtesting, get as much historical data as possible.<\/p>\n

Define a Review Period<\/h2>\n

Once you have a lot of historical data to test with, be sure to define your review period for your strategies.<\/p>\n

If you are creating a strategy on the daily chart, you might want to review the returns on a yearly basis.<\/p>\n

Now if you're testing on the 1 hour chart, you should probably review your monthly results.<\/p>\n

Then figure out your average return per your review time period.<\/p>\n

You probably won't be profitable in every review period, but you want to see what type of drawdowns you'll have to endure and what to expect from the trading strategy.<\/p>\n

This analysis will allow you to compare trading strategies in an objective manner and judge which strategies you may want to pursue and which ones to drop.<\/p>\n

Set a Goal<\/h2>\n

Now it's time to figure out what matters to you<\/em>.<\/strong><\/p>\n

A “good” trading strategy has to be good for you and nobody else.<\/p>\n

It won't necessarily be the most profitable or the most consistent.<\/p>\n

But if it meets your income needs, then that's all that matters.<\/p>\n

A word of caution here…<\/p>\n

Many traders (myself included) start out with unrealistic goals for their strategies.<\/p>\n

So set a goal, but you might find yourself having to adjust what you expect out of one<\/em> trading strategy.<\/p>\n

You might have to trade several trading strategies or markets to get the results you're looking for.<\/p>\n

Don't get discouraged however, if you keep working the results will come.<\/p>\n

How to Identify Trading Strategies with Potential<\/h2>\n

There are 3 basic types of backtesting results:<\/p>\n

    \n
  1. Terrible<\/li>\n
  2. Breakeven<\/li>\n
  3. Profitable<\/li>\n<\/ol>\n

    Now I'll define each and show you what to look for in each.<\/p>\n

    A Terrible Backtesting Result<\/h3>\n

    \"audusd<\/p>\n

    This one is obvious.<\/p>\n

    If the strategy loses 80% of the account or more, then you probably shouldn't spend any more time with it.<\/p>\n

    The strategy above lost 99.82% from 2009 to 2024.<\/p>\n

    That's as bad as it gets.<\/p>\n

    Trying to optimize a strategy with a terrible result is like polishing the brass on the Titanic.<\/p>\n

    It's best to move on and use your time and brain power to create a new strategy.<\/p>\n

    A Breakeven Backtesting Result<\/h3>\n

    \"EURUSD<\/p>\n

    Here's where things get exciting.\u00a0<\/em><\/p>\n

    Most new traders will throw away a breakeven strategy, but not you because you're reading this article.<\/p>\n

    A breakeven strategy can potentially be optimized and made much more profitable.<\/p>\n

    It might just need a tweak or two to work well.<\/p>\n

    Here are some questions to ask when trying to improve a strategy:<\/p>\n