What is the Difference Between Backtesting Vs. Forward Performance Testing?

Searching for the difference between Backtesting Vs. Forward Performance Testing? Well before directly jumping onto the two, one needs to understand the ideal backtesting Scenario.

Backtesting Vs. Forward Performance Testing

Forward performance testing provides traders with another set of sample data to evaluate the system. It is a simulation of actual trading and involves testing of the system’s logic in a live market condition. Forward performance is also known as paper trading because all trades executed on paper only i.e., all trade logs basically entries or exits are documented along with profits or losses associated with the system, but here no real trades are executed.
An important feature of paper trading is to follow the system’s logic exactly otherwise it would become too difficult for a trader.
Note: Difficult, not impossible to accurately estimate the procedure steps. Traders need to be honest about trade entries and exits and avoid not documenting trade on paper etc.
So whenever a trade happens, the trader needs to follow the system’s logic and it needs to be documented and evaluated.

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