Backtesting is a simple process which helps a trader to evaluate his trading ideas and provides information about how good the trading system performs on the given historical dataset. It talks a lot about the behavior of the trading system, risk involved in trading a particular trading system and lot about trading system performance. Here is a video tutorial with step by step guide on how to perform a simple backtesting using Amibroker.
Backtesting is a process of Testing the trading conditions with respect to the past historical data, evaluating not only the profitability of the system but the underlying risk factor associated with the Trading/Investing Model. Proper Backtesting gives belief and enough confidence to a trader to trade a set of rules. But are the newbie traders really doing proper backtesting?
Backtesting and Optimization to be pretty much essential step in trading strategy development. If the strategy is not performing well in the backtest results we can skip the system and move on to the next one. But if the backtest results are good then one should be extra cautious as most of the times backtesting your own Trading Strategy might give interesting results. However when comes to practical trading the scenario might be completely different and most of the times it results in a poor performance or lower than the expected backtest results.