Backtesting in investing means simulation of portfolio return with historical data using given allocation and strategy. In addition to return, backtesting also reveals the risk of volatility that is likely to be in specific strategies. A significant part of the volume traded in today’s markets is done with the aid of some kind of automation. Mostly this is used by traders that base their investing in technical analysis. Backtesting is an critical part of growing trend of automatic trading.
Benefits and risk
When done right, backtesting may be an invaluable tool for making decisions on whether or not to make use of a trading approach. The sample time period on which a backtest is executed on is important. The period of the sample term have to be long enough that it consist of periods for various market conditions which include uptrends, downtrends and range-certain buying and selling. Performing a check on most effective one type of market situation might also yield precise outcomes that may not characteristic in different market situations, which may also cause fake conclusions.
I stumbled upon this cool free portfolio back tester you can use for buy&hold strategies.
Here is the link to the tool
There is a configuration example embedded into the link going from 1972 to 2015.
So go and have fun with the tool. And if you find something cool, please share with us 🙂
More on backtesting in investopedia