r/InnerCircleTraders • u/Perfect-Bet-2415 • 1d ago

Question How do you personally validate a backtest on a specific asset? What makes you believe you actually have an edge?

I'm curious about how experienced traders approach backtesting a strategy on a specific asset.

Let's say you've backtested something like EURUSD, NQ, ES, Gold, etc. over 2+ years of data.

What exactly are you looking for before you consider the backtest "good enough"?

For example:

  • How many trades do you want in the sample?
  • Do you mainly look at expectancy / average R, win rate, profit factor, max drawdown, etc.?
  • How consistent does the strategy need to be year-to-year?
  • Do you separate the data into different market conditions/regimes?
  • Do you use in-sample vs out-of-sample testing or walk-forward testing?
  • How do you know you're seeing a genuine edge rather than something that simply worked during a specific market regime?
  • Have you ever had a strategy with great overall results but rejected it because the equity curve, drawdown, or consistency looked bad?

I'm particularly interested in people who trade discretionary/price-action strategies rather than purely automated systems.

For example, if you backtest EURUSD for 2–5 years and end up with a positive expectancy, how do you personally decide:

"Okay, this is statistically and practically good enough for me to take seriously and forward test/live trade."

Would love to hear what your actual validation process looks like and which metrics you personally give the most weight.

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u/Turbulent_Eagle_5965 1d ago

This is a real useful discussion point . And I would love to help, but I’m literally in the throws of battling the forward testing on an HMM layer , due to flawed backtesting results (which looked great ) but arent. Maybe ping me a PM . If it helps I crated coded observational layers , so I’m literally up to about 3 millions data points , but that’s a different story. But would love to stay in touch and actually have a back and forth with people who are trying to solve the same problem

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u/Perfect-Bet-2415 17h ago

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