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Backtesting crypto trading strategies is part of validating your system before risking real capital. Running simulations on historical data allows you to optimize parameters, evaluate performance in various markets, and check the viability of your rules. 

In this guide, learn the proven guidelines for conducting accurate, unbiased backtests to choose and refine winning crypto models.


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1. Establish a Realistic Backtest Environment

While excitement builds to simulate your shiny new crypto strategy, realism must trump enthusiasm during backtests. The overarching goal is to create a virtual testing environment mirroring the live markets as closely as possible.

Here are critical principles for backtesting cryptosystems without bias:

Isolate Training & Testing Sets – Split historical data into in-sample training sets for initial development and out-of-sample testing sets for simulated trades. This avoids tainting results through over-optimization.

Consider Transaction Costs – Factor in actual trading fees, spreads, slippage, and minimums to reflect real-world trade executions. This accounts for ‘hidden’ costs affecting P&L.

Model Real-World Holdings – Assume standard position sizing and account balances during backtests without taking on excess leverage that won’t translate to live trading.

When your crypto strategy goes live, you can avoid surprises by incorporating real-world limitations and costs into your backtests.

Read this article for more insights: What’s The Point Of Backtesting In Trading?


2. Avoid Backtest Biases and Overfitting

Common backtesting pitfalls stem from biases causing inflated performance measures on historical simulations. 

Sometimes, strategies appearing wildly profitable through over-optimization often crack when exposed to live market data that differs from the narrow backtest inputs.

To avoid questionable practices that yield misleading simulated results, traders should understand and mitigate forms of bias. 

Fitting strategies solely to idiosyncrasies in historical test data leads to models that fail when those precise conditions do not recur in live trading. 

a man in a suit appears worried and stressed while gazing at his laptop screen during work

Making hypothetical decisions using full knowledge of future outcomes also skews results away from realism.

Additionally, backtests restricted to active instruments ignore earlier failures that would detract from performance metrics. Optimising and judging strategies on very limited history rather than stress testing across extended periods leaves models susceptible to market shifts.

While no backtest can eliminate bias given imperfect input data; traders optimise utility by maximising sample diversity across long time horizons and market conditions. 

Careful model design and robust simulation testing increase confidence in live trading viability. 

But, always remember that backtesting should inform rather than guarantee live performance, as standing the test of time remains the ultimate judge.

Find insights in this article: Understanding the Mind of a Trader


3. Choose Optimal Testing Conditions

To ensure accurate performance assessment during backtesting, traders strategically choose crypto assets, timeframes, and historical periods that maximise confidence in systems.

Some guidelines around structuring backtest conditions include:

Test Across Market Environments – Evaluate crypto strategies across bull runs, ranges, crashes, and recovery periods to gauge adaptiveness. Extended backtests over 8-10+ years serve best.

Vary Testing Timeframes – Run intraday scalping models on minute charts but test long-term trend models on daily or monthly charts to match actual trading time horizons.

Include Multiple Assets - Backtesting crypto strategies across different digital coins and tokens checks whether the edge translates to variations in volatility, liquidity profiles, etc.

Cycle Starting Dates – Run multiple backtests across sequential years and monthly periods rather than purely static dates to eliminate possible sample biases.

Crypto traders verify whether the edge generalises beyond isolated backtest environments by testing across diverse market conditions and assets using appropriate time settings.

Take a look at this article: Upsides And Hurdles Of Adopting Paper Trading


4. Continue Improving Your Crypto Strategy 

Optimisation and refinement are ongoing, even after the launch of your crypto backtesting. Skilled traders follow structured procedures for continuous improvements, which lead to additional performance gains over time.

Expanding Assets Traded

crypto tokens arranged atop a trading screen displaying a diverse portfolio of cryptocurrencies


As crypto strategies demonstrate consistent skills in live trading, traders sensibly apply them to additional cryptocurrency products. 

What begins with a single coin or token can expand to a broader, diversified set of digital assets. This amplification of strategy reach across more instruments improves returns through greater opportunity sets.

Conducting Periodic Performance Reassessments

A common optimisation technique includes regular backtests on continually updating data. Traders re-simulate the strategy over recent months or years to gauge if its edge holds steady, improves, or degrades over time. 

Analysing performance trends informs parameter adjustments or signals when more significant enhancements are necessary.

Carefully Tuning Strategy Rules

Should degraded performance emerge in reassessments, traders prudently tweak rules and optimise inputs. Nevertheless, the overarching focus remains guarding against excessive optimisations that eventually degrade live trading. 

Any tuning explicitly aims to improve robustness rather than extracting unsustainable historical returns.

Upgrading Operational Infrastructure

Finally, refining the infrastructure powering a crypto strategy boosts its scalability and efficiency. Traders upgrade core elements like trade automation systems, analytics dashboards, and data flows to support better decision-making. 

Investing in the operational machinery around models is suitable for longer-term considerations.

You might also like to read: AI Trading For Beginners



Backtesting is a crucial step in developing and refining potentially more successful crypto trading strategies. By establishing realistic testing environments, avoiding biases and overfitting, and choosing optimal testing conditions, traders can gain confidence in their models before risking real capital. 

However, the process doesn’t end there. Continuously improving and adapting strategies through expanding asset selections, periodic performance reassessments, careful rule tuning, and operational infrastructure upgrades are essential for more informed decision-making and proper risk management. 

As the crypto market evolves, traders who invest time and effort into mastering the art of backtesting will be well-positioned to attend to emerging trading opportunities. 

To further enhance your skills and knowledge, explore additional resources on crypto backtesting techniques, best practices, and case studies from successful traders.

Become a member of and leverage our advanced trading tools and resources!

“When considering “CFDs” for trading and price predictions, remember that trading CFDs involves a significant risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be considered investment advice. Trading cryptocurrency CFDs and spread bets is restricted for all UK retail clients.” 

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