Backtestingpurane data par strategy ka test

Backtesting means applying a fixed set of trading rules to past price data and recording what would have happened. You define entry, exit, stop loss and position size, run the rules over, say, five years of Nifty data, and count the results. The output shows win rate, average win, average loss, largest drawdown and expectancy. Backtesting catches ideas that sound clever but lose money. It has limits. Past data does not include tomorrow's news, real slippage or the temptation to skip a trade. Many people also tune rules until they fit the past perfectly, which then fails in live markets; this is called curve fitting. A good backtest uses simple rules, includes brokerage and taxes such as STT, and is followed by forward testing on paper before any real capital is used.