What Is Backtesting in Crypto?
Backtesting is basically your way of asking, “If I’d traded like this last year, how would it have gone?” You take a previously-used crypto trading strategy, run it through past market data, and see how it would have played out, without putting a single real coin on the line.
The idea is very simple: if something worked well before, maybe it’ll work again. By seeing how your rules would have triggered trades in the past, you can get a feel for how profitable, risky, or downright messy they might be in the real world. You basically learn from your trading history.
How backtesting works
Here’s the usual flow:
Set the rules: Spell out your plan in detail. Entry and exit triggers (“buy when the 50-day average crosses above the 200-day”), risk limits (“stop-loss at 2% below entry”), and what you’re even trading in the first place.
Grab the data: Pull clean historical price and volume data for your chosen coin. The more accurate and complete, the better.
Run the test: Apply your rules to the old data. You can do it by hand, staring at charts, but most people let software do the heavy lifting.
Read the report: The tool spits out numbers on how your “would-have” trades performed. Look at:
Profitability: Total gains, losses, and the profit/loss ratio.
Risk: How bad the worst drop (max drawdown) was, and other measures like the Sharpe Ratio.
Win Rate: What percentage of trades were winners?
