Question 1

What is backtesting in simple terms?

Accepted Answer

Backtesting is replaying a fixed set of trading rules over past price data to see how those rules would have behaved. You define the entries, exits, and risk, then step through history bar by bar and collect the results.

Question 2

Does a good backtest predict future profit?

Accepted Answer

No. A backtest describes the past only. It can tell you whether an idea ever had structure, but it cannot promise the same behavior will repeat, because future conditions and your own execution will differ.

Question 3

Why do so many backtests fail when traded live?

Accepted Answer

Common reasons include too few trades, rules tuned to fit past noise rather than a real pattern, and real-world costs like fees and slippage that the simulation ignored. Honest evaluation guards against all three.