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Precise and concrete data is most effective in producing high quality backtesting results, rather than involving too many data sets in the test. A combination of other trade strategies with backtesting are well worthwhile in a trader’s trading journey.
Introduction to Backtesting
Typically, all trading attempts are for profit-making. The market is the ground on which traders deploy different strategies to profit off the markets price movements. Regardless of the approach adopted, improved profitability remains the core driver for many traders. A backtesting system is a very crucial aspect of any adopted strategy. It gives the direction of what to improve upon or what to change based on historical trading/price data.
What is Backtesting?

In backtesting a strategy, traders do not need to risk real funds. It is merely a tool that traders can use when exploring new techniques or markets. Backtesting assesses the viability of a trading strategy or a pricing model by discovering how it would have played out retrospectively using historical price data.
Smart traders do not attempt using a strategy for the first time. Many subject their strategies to some tests that could prove its worth of use or not. Backtesting simulates trades and gives traders an insight into how well a strategy will work when put to live trading.
How Does Backtesting Work?

Backtesting is of two types; the manual and the automated approach. Manual backtesting involves analyzing charts and historical price data and manually placing the trades according to the strategy. On the other side, the automated system consists of using a coded program to simulate a trading strategy with all of the historical price data inputted.
The underlying premise behind the approach is to check the strategy’s viability. What worked in the past may work in the future within the same historical price range. This can be both tricky and misleading as what worked in one market may not work in another, or what worked in the past may not work in the present.
For example, a backtesting strategy could be to check the buy rate of a particular stock when it falls towards a specific percentage using historical price data.
Traders may use Google doc or spreadsheet to evaluate the performance of the strategy. The document serves as the strategy report that may include the trading platform, asset class, trading period, number of winning and losing trades, Sharpe ratio, maximum drawdown, net profit, areas in which the strategy could be improved upon, and the significance of the strategy.
Backtesting and Paper Trading

Forward performance test or paper trading provides a different insight to the market opposed to backtesting. In a paper trading strategy, traders are provided with a set of live out-of-sample data to evaluate their system. Traders do not need to risk their capital, as they could only execute their trades on paper alone. Entering all data in a sheet along with the profit and loss of their system.
Significance and Appeal of Backtesting
Backtesting shows if a strategy will perform well in the period when it’s supposed to. For example, Apple stock may rise or fall when a new release is scheduled or announced. The backtesting strategy shows if such activities have a price history, how effective, the percentage in the rise or decline of the price whenever such events are announced or scheduled.
Backtesting will provide an understanding of how the strategy performs in different markets. Backtesting in various markets will give a much better insight into a strategy than using only one market type.
Improving the strategy as per the result obtained from backtesting the system involves tweaking the strategy to fit into his profit objective. This creates a potential problem for the trader as he continues to make changes to suit his goal. The result may mean that the strategy may not be profitable in a real live trade.
Weaknesses of Backtesting

Many traders do not take into account the bias of their strategy when they continuously make changes. The result will be that the strategy may mostly fail in a real live trading environment. For backtesting to work, traders must learn to develop their strategies and test them in good faith, avoiding bias as much as possible. A strategy should be developed without relying on data and biases in the backtesting strategy.
Testing a wide range of hypothetical strategies against the same data set is more likely to fail in live trading because of too many invalid strategies. This could beat the market over some time when back teste properly. This is called data dredging.
Alternatively, to compensate for the tendencies to cherry-pick or get involved in data dredging, traders can use a strategy that works in relevant, in-samples and periods and backtest with data from different relevant and out-of-sample periods. If the two events obtained the same result or something close, then the strategy is valid.
Concluding Thoughts
Cherry-picking based on traders’ bias and data dredging should be avoided by traders at all costs. These pitfalls will declare their backtesting strategy invalid in a real live trading environment. Precise and concrete data is most effective in producing high quality backtesting results, rather than involving too many data sets in the test.
Backtesting results may be tricky because it is easy to imprint your ideas. Therefore backtesting alone won’t guarantee a 100% profitable trading experience. A combination of other trade strategies with backtesting are well worthwhile in a trader’s trading journey.
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Related News

Explore the comparative analysis between Bitcoin and Pi Network, two prominent networks shaping the future of decentralized finance. Uncover their differences in mining, scalability, market acceptance, and community dynamics.
TL;DR:
- Bitcoin and Pi Network are compared in terms of their foundational principles, mining methods, scalability, market acceptance, and community dynamics.
- Bitcoin operates as a decentralized digital currency, while Pi Network focuses on accessible mining through mobile devices.
- Bitcoin mining relies on computational power for security, while Pi Network utilizes a mobile mining approach with lower energy consumption.
- Bitcoin faces scalability challenges, while Pi Network needs to address scalability as it aims for widespread adoption. Market acceptance and value differ between the two networks.
Cryptocurrencies have opened new avenues for financial transactions, decentralized networks, and innovative technologies. Bitcoin, the first and most well-known digital asset, has paved the way for a digital revolution.
However, newer players like Pi Network are entering the market with unique propositions and aiming to challenge the status quo. This article will conduct a comparative analysis of Pi Network and the Bitcoin network to understand their similarities, differences, and potential implications for the future of Decentralized Finance (DeFi).
Foundational Principles
Bitcoin, introduced in 2009 by the pseudonymous Satoshi Nakamoto, was designed to be a decentralized digital currency that operates on a peer-to-peer network. Its foundational principles include security, transparency, and scarcity. Bitcoin's blockchain technology enables secure transactions without intermediaries or central authorities.
Pi Network, on the other hand, was founded by a team of Stanford graduates in 2019. It creates a digital currency, $PI, that can be mined using mobile devices, making it accessible to the masses.
Mining and Network Security
Both Pi Network and Bitcoin utilize mining as a fundamental process, but they employ different approaches. Bitcoin mining involves solving complex mathematical problems through computational power to validate transactions and add new blocks to the blockchain. This process ensures network security and prevents double-spending.
In contrast, Pi Network's mobile mining aims to provide an alternative approach that allows users to mine using their smartphones. It utilizes a consensus algorithm that doesn't require massive computational power or energy consumption. However, it's important to note that Pi Network is still in the enclosed mainnet phase, and the security and decentralization of its network are not as established as Bitcoin's.
Scalability and Transaction Speed
Scalability has been a significant challenge for Bitcoin. The network can handle a limited number of transactions per second, leading to congestion during peak periods and higher transaction fees. Various solutions, such as the Lightning Network, have been proposed to address these scalability issues and enhance transaction speed.
Pi Network, a relatively new project, has not yet faced the same scalability challenges as Bitcoin. However, as Pi Network aims to achieve widespread adoption, it must address scalability concerns to support a growing number of transactions and users when the open mainnet goes live.
Market Acceptance and Value
Bitcoin has gained widespread acceptance and recognition as a digital asset and a medium of exchange. It has attracted institutional investors, retail traders, and merchants worldwide. Bitcoin's value is determined by market demand, and its price has experienced significant volatility over the years.
In comparison, Pi Network’s enclosed mainnet phase means that its native currency has not yet been listed on major exchanges. Its value and market dynamics are not freely tradable or well-established. Pi Network's success in gaining market acceptance and establishing value will depend on user adoption, utility, and listing on reputable exchanges.
Community and Ecosystem
Bitcoin has a robust and active community of developers, enthusiasts, and supporters. Its open-source nature has allowed for the development of various applications, platforms, and services built on top of the Bitcoin network. The Bitcoin community has played a vital role in its growth and adoption.
Pi Network, as a newer project, is also building its community of users and supporters. It has attracted many early adopters enthusiastic about its vision of accessible mining. The Pi Network team actively engages with the community, providing updates and addressing concerns. Building a solid and engaged community will be crucial for Pi Network's success and future development.
Conclusion
The comparative analysis between Pi Network and the Bitcoin network highlights their differences in approach, mining methods, scarcity, scalability, market acceptance, and community dynamics. Bitcoin, as the pioneer in the cryptocurrency space, has established itself as a widely recognized and accepted digital asset. Its decentralized nature, security, and growing ecosystem contribute to its value and market dominance.
Pi Network, on the other hand, is a newer project that aims to bring mining to the masses through mobile devices. It introduces a unique consensus algorithm and focuses on accessibility and user-friendliness. However, Pi Network is still in its early stages, and its network security, scalability, and market acceptance are yet to be fully established.
Both Pi Network and the Bitcoin network contribute to the continuous innovation and evolution of decentralized finance. While Bitcoin remains the leader in market acceptance, value, and ecosystem development, Pi Network's vision of accessible mining and user-friendly approach could have implications for making cryptocurrencies more inclusive and widespread.
This is a paid press release, BSC.News does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products, or other materials on this page. The project team has purchased this advertisement article for $1500. Readers should do their own research before taking any actions related to the company. BSC.News is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods, or services mentioned in the press release.
This is a paid press release, BSC.News does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products, or other materials on this page. The project team has purchased this advertisement article for $2500. Readers should do their own research before taking any actions related to the company. BSC.News is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods, or services mentioned in the press release.
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