Overview

Evaluating a trading strategy can be a tricky business. Even if the strategy has been traded in the markets so that a true performance record is available, the future is still unknown and the old maxim that past performance is not a guide to future performance is applicable.

For strategies which have no actual history, the first step of analysis is often to generate a hypothetical trading history by backtesting the strategy. This process itself is fraught with risk, largely due to the market impact of the strategy, which can only be guessed at.

Topics

• Backtesting a Strategy : The first step of testing a strategy is often running the strategy on past data to try to understand how well it would have performed.
• Assessing Indicators - if an trade algorithm is based on a set of indicators (technical or quantitative measurements), those indicators can be assessed independent of the strategy itself.
• Summarizing Portfolio Performance The methods of Portfolio Performance and Portfolio Risk can be applied in generic trading situations. Statistics can be run over individual trades, see trade statistics.