How to Backtest Your Trading Strategy the RIGHT Way in 2025 (Step-by-Step)

Summary

The video provides a detailed walkthrough of effective backtesting strategies for trading. The speaker emphasizes the importance of treating backtesting as real-time trading, following a structured plan of taking one trade per day, and documenting decisions in a trading journal. Key tools like TradingView's replay feature and Heikin-Ashi candlesticks are discussed, along with a workaround to use Heikin-Ashi for backtesting. The speaker also promotes their inner circle for additional insights and offers a scalping strategy for viewers to backtest and improve their trading skills.

Takeaways

• 😀 Treat backtesting as real-life trading by following your trading plan, even if it means waiting for the next day to trade.
• 😀 Backtesting should involve looking at price action as if it’s unfolding in real-time, avoiding hindsight analysis.
• 😀 Focus on specific trading sessions like the London and New York sessions to time your trades effectively.
• 😀 Use support and resistance zones, as well as trendlines, to guide your entry and exit points during backtesting.
• 😀 When the market doesn't move as expected, track it as 'no trade today' in your journal rather than forcing a trade.
• 😀 Use the replay feature in platforms like TradingView to simulate market conditions, but treat it like real trading by not knowing future price action.
• 😀 The replay feature is valuable for practicing strategies, but it works the same way on other platforms like FX Replay for more detailed tracking.
• 😀 Use manual tracking and journaling to record your trades instead of relying on demo features like buy/sell buttons in replay tools.
• 😀 Heikin-Ashi candlesticks can be used for backtesting, even though TradingView doesn’t support them in the replay feature; a workaround exists.
• 😀 The 'Heikin-Ashi Candle Overlay' indicator on TradingView can be used to simulate Heikin-Ashi candles while still using regular candles for replay.
• 😀 Having a proven strategy is essential for backtesting, and it's important to test that strategy repeatedly to improve your trading results.

Q & A

What is the importance of backtesting in trading?

Backtesting is crucial because it allows traders to simulate how a trading strategy would have performed in the past, helping them refine their approach and gain confidence before applying it in real markets.

How does the trader suggest treating backtesting?

The trader recommends treating backtesting like real-life trading, adhering to a clear set of rules, such as only taking one trade a day, regardless of whether the trade is a win or loss.

What does the yellow line signify in the video?

The yellow line indicates the start of the London trading session, marking a key time to start drawing new support and resistance zones and prepare for potential trades.

How does the trader manage trades that don't meet their setup?

If a trade setup doesn't meet the trader’s criteria, they document it in their journal as 'no trade today,' ensuring they only execute trades that align with their strategy.

What is the purpose of using replay features like those on TradingView and FX Replay?

Replay features allow traders to backtest their strategies by replaying past market data as if it's happening live, helping them refine their strategy without the risks of real-time trading.

Why does the trader prefer to avoid the buy/sell function in the replay feature?

The trader prefers not to use the buy/sell function in the replay feature because it is based on candlestick formations, whereas their strategy might require entering positions as soon as price breaks a specific zone, which the replay function can't capture accurately.

What challenge does the trader face when using Heikin-Ashi candles in backtesting?

The challenge is that TradingView doesn’t allow backtesting with Heikin-Ashi candles, which limits the ability to test strategies that depend on this type of candlestick.

What workaround does the trader suggest for using Heikin-Ashi candles in backtesting?

The trader suggests using the 'Heikin-Ashi Candle Overlay' indicator on TradingView, which overlays Heikin-Ashi candles on top of regular candlesticks, allowing backtesting while still adhering to Heikin-Ashi strategy.

What is the trader’s opinion on the use of the Heikin-Ashi overlay indicator?

The trader views the Heikin-Ashi overlay indicator as a useful hack to overcome TradingView's limitation, allowing them to backtest with Heikin-Ashi candles while keeping TradingView's regular candlesticks in the background.

How does the trader promote their inner circle program?

The trader promotes their inner circle program by highlighting the live calls and the opportunity for members to receive trading tips, strategies, and assistance, suggesting it’s beneficial for improving overall trading skills.