What Is Backtesting?

Definition

Backtesting is running a trading strategy against historical market data to estimate how it would have performed. It produces an equity curve, a drawdown profile, and a set of performance metrics.

Why it matters

Without a backtest, you don't know if your strategy has edge or just survivorship bias from memory. The backtest quantifies expectations — average return, max drawdown, win rate, expectancy — against a reference period.

Traps

Backtests are famously easy to fool: curve-fitting (tuning parameters to past data), look-ahead bias (using information that wasn't available at the time), survivorship bias (testing only on currently-listed stocks), and cherry-picked periods. A great backtest is a necessary but not sufficient condition for live success.

Backtest vs live

The gap between backtest and live P&L is almost always negative. Slippage, transaction costs, order routing, and market microstructure are hard to model perfectly. Sleeping Trade's 5-month live record is more meaningful than any 5-year backtest — because it includes all those frictions.

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How Sleeping Trade approaches backtesting trading strategies

Sleeping Trade does not sell users a backtest. We publish the live track record because backtests are a much weaker signal than real broker statements.

If you are evaluating us versus a competitor with a glossy backtest, ask whether the backtest accounts for slippage, partial fills, fees, and the specific liquidity conditions of Indian F&O. Most do not.

Frequently Asked Questions

Does Sleeping Trade publish a backtest?

No. We publish the live track record. Backtests systematically overstate performance and we do not want users making decisions on overstated numbers.

How do I evaluate a service that only shows backtests?

Ask whether slippage, fees, and fill quality are modelled. Ask for an audited live track record. Treat unaudited backtests with skepticism.

How long is your live track record?

Five months at the time of writing. We will not pretend that is a long history. We disclose it as-is.

How to read a backtest critically

First check: what time period does the backtest cover? A backtest that runs only through a single market regime (a long bull run, for example) tells you very little about strategy robustness.

Second check: are slippage and fees modelled? Most retail-facing backtests assume zero slippage on market orders. Live performance is always worse.

Third check: is there a live track record alongside the backtest? A vendor with a glossy backtest and no live record is selling hope. Sleeping Trade publishes the live record because that is what users should make real-money decisions on.