Why Backtest the Strategy

I have created some of the strategies for Swing Trading in my YouTube video. Now the thing is anyone can create the strategy but what if it is not backtest. Now people will be able to trust if the strategy will work or not. And that's why backtesting the strategy is required.

For example, I am running the ETF ki dukan and I am getting around 8 to 10% returns which is quite good when the market has given almost 0% returns in last 12 months. Now the thing is though it's not a very good strategy but it's not bad either. And that's why when we have backtested it, we can see the difference. And also whether you like to continue with the startegy or not.

Sometimes backtest can give different result but the actual gives different which is bound to happen because past performance doesn't mean you will get the same performance in future too. When we back test, the problem is the mood of the market might be different whereas when you run it, the mood of the market is different. And that's why we have to backtest for minimum of 4 years which includes bull and bear market to see how it is performing.

Also when we actually run the startegy for ourselves, we should run for minimum 4 years to see how close it is getting with the backtested result. And if the atartegy is not working then you can take a call to quit the startegy. And that's why we should not invest all the money in one startegy. Your 10% of the capital should be deployed in testing one startegy so that even if it fails it doesn't give you much problem.

The backtest result of ETF ki dukan has given around 15% and I am getting 9% from last 2 years. Now I will wait for another 2 years to see how good the performance is really and should I continue with the strategy or not.

Posted Using INLEO