On trading system developing, Backtesting is the process of
testing a strategy on a financial historical data. However a backtest don´t
represent necessarily the real performance of the system. It could easily made a
overfitting, changing the parameters of the system, optimizing the system, but
not realy outperforming because the parameters are overtrained to precisely this
situation, with a high performance imprecision. The process of the system
design needs a separate historical data for the data validation process.
The process of Optimization, the quality of the data, the
indicators accuracy, for example, are details that must be looked inside. A
system response, observed on the backtest graphic can present a very high sensitivity,
changing drastically the performance with few parameters changes, indicating an
imperfect optimization.
The quality of data and of the mathematical models as well
as the process of optimization could talk more of a trading system than just a
backtesting.
