How to Backtest Strategies Correctly in NinjaTrader
Backtesting is the backbone of confidence. If you don't know that your strategy has worked in the past, you won't have the conviction to stick with it during a drawdown in the future. But most traders do it wrong.
The Trap of Curve Fitting
Curve fitting (or over-optimization) happens when you tweak your settings so perfectly that they produce amazing results on historical data, but fail miserably in live trading. You created a strategy that memorized the past instead of learning the patterns.
The Golden Rules of Backtesting
- Out-of-Sample Testing: Optimize your strategy on data from 2023-2024. Then, run those exact same settings on data from 2025. If the performance holds up on the "unseen" data, you might have an edge.
- Include Commissions and Slippage: A strategy that makes $10 per trade is a losing strategy once you factor in $5 commissions and 1 tick of slippage. Always stress-test with realistic costs.
- Look at Max Drawdown, Not Just Net Profit: A strategy that makes $100k a year sounds great. But if it has a $50k drawdown in the middle, will you still be trading it? Probably not. You would have quit (or been liquidated).
YMI's Process
We spend hundreds of hours stress-testing our bots (Marty, KPL) across different market regimes before we release them to members. We do the heavy lifting so you can trade with confidence.
Risk Disclosure & Disclaimer
Educational Purposes Only: The content provided in this blog is for educational and informational purposes only. It does not constitute financial, investment, or trading advice. Young Money Investments is not a registered investment advisor, broker-dealer, or financial analyst.
Risk Warning: Trading futures, forex, stocks, and cryptocurrencies involves a substantial risk of loss and is not suitable for every investor. The valuation of futures, stocks, and options may fluctuate, and as a result, clients may lose more than their original investment.
CFTC Rule 4.41 - Hypothetical or Simulated Performance Results: Certain results (including backtests mentioned in these articles) are hypothetical. Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program.
Testimonials: Testimonials appearing on this website may not be representative of other clients or customers and is not a guarantee of future performance or success.
