It gives traders an insight into the effectiveness of their ideas with just a few keystrokes without actually putting any funds in a trading account. Backtesting can help in analyzing ideas, for instance how an average crossover performs on past data or a more complicated system with few inputs and triggers.
As long as a trader’s idea can be quantified, it can be backtested. Some traders seek out qualified programmer expertise to develop the idea into a testable form. Meaning coding of an idea into proprietary language hosted by the trading platform.
This allows traders to “tweak” the system through a user-defined input variable incorporated by the programmer.
For instance, let’s consider a simple moving average crossover system as a user-defined variable which can be changed according to the need of the trader as in the length of the two moving averages. Thus allowing the function of backtesting in evaluating which out of two moving average would perform better or best on the historical data.