Systematic Advantage #17: Systems allow you to test an idea before you risk your capital
Backtesting is an essential tool for traders that helps them evaluate their investment strategies without investing actual funds. Backtesting allows users to create virtual portfolios and analyze potential outcomes in different market conditions using historical data to perform simulations. With this technique, investors can assess the performance of their investment plan in the past, evaluate the associated risks, and identify any inaccuracies or drawbacks in their approach. By uncovering these shortcomings, backtesting enables traders to make necessary improvements to their investment plan, leading to more informed and effective decisions.
