Definition – What does Backtesting mean?
Backtesting is the process of vetting a trading strategy by running it in different scenarios using historical market data. Currency traders use backtesting to see if a strategy would have worked in past markets. If the strategy yields profitable results with past data, then it is more probable that it will succeed in the market.
ForexTerms explains Backtesting
Backtesting is an essential part of creating a trading strategy for technical forex traders. Traders create a strategy with certain rules that define when a trade is entered and exited, and then test it in different markets (data samples) from the past. After backtesting, a trader usually tests the strategy with current market data to see if it maintains the same success rate before taking it live.