Before deploying a trading strategy with real money, it’s essential to backtest it using historical data. This process allows you to simulate how the strategy would have performed under different market conditions, helping you assess its strengths, weaknesses, and overall viability. By analyzing how the strategy behaves across various market environments—such as bull markets, bear markets, or periods of high volatility—you can gain valuable insights into its reliability and profitability. Backtesting provides traders with a clearer understanding of what to expect, ensuring that they have a tested plan in place before putting real capital at risk. This step helps minimize the chances of failure and gives you the confidence to execute trades based on proven results.

However, it’s important to remember that while backtesting provides insights based on past data, it does not guarantee future success, as markets are constantly evolving. It’s still a crucial starting point for identifying whether a strategy holds potential.

. Why use a trading journal: By keeping a detailed record of backtested trades in your trading journal, you can track the historical performance of your strategy before risking real money. This allows you to analyze the results in a structured way and identify potential areas for improvement. Once you move to live trading, the journal helps you compare the backtested results with real-time performance, making it easier to spot discrepancies that may indicate shifts in market conditions or issues with your strategy. This reflection ensures that you can continuously adjust and refine your strategy to remain relevant and effective, keeping you one step ahead of market changes.

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