Crypto Backtest Basics

What is a Backtest?

A backtest simulates how a trading strategy, called a "symphony," might have performed in the past using historical data. It’s important to note that these simulations make certain assumptions and differ from live trading symphonies.

Key Points to Understand

Hypothetical Nature: All backtest results are hypothetical and benefit from hindsight.
Past Performance: Past performance is not a reliable indicator of future performance.
Estimation: Backtests estimate how a model performs under specific market conditions and are not recommendations for actual trading decisions in the past or the future.

Data Sources

Backtests: We use daily historical prices from 4:00 PM Eastern to simulate historical trading decisions.
Live Trading: When a symphony is traded live, trading decisions are made during the trading period using real-time data, which represent real quotes on the market.

Trading Period

Time of Day: Live trading happens during the trading period between 3:45 PM and 4:15 PM Eastern Time. Decisions made during this window may differ from those suggested by a backtest due to volatility.
Intra-day Variations: High volatility can lead to different decisions even for different instances of the same symphony due to varying real-time quotes.

Costs Considered

Spread Markup: This is the additional cost added by the dealer on either side of a crypto trade. For crypto symphonies, the spread markup is set at 20 basis points (bps).
Slippage: Slippage reflects the potential cost difference between hypothetical trades in your backtest and actual trades that might encounter price movement and spread. The amount of slippage is influenced by market conditions, liquidity, and bid-ask spreads. The default slippage setting in backtests is 1 basis point (bps)

Benchmarks and Indices

Purpose: Used only for illustrative purposes and provided for the purpose of making general market data available as a point of reference only.
Limitations: Benchmarks and financial indices are unmanaged, do not reflect the impact of any trading commissions and costs, management and incentive fees.
Benchmark Choice: Bitcoin is not the only benchmark for measuring the performance of a portfolio. Depending on the holdings in your portfolio, your investment objectives, and your risk tolerance, it may be more appropriate to measure performance against a different benchmark.

Backtesting Compared to Other Platforms

Assumptions Vary: It’s crucial to understand that different platforms may use different assumptions in their backtests. We recommend users familiarize themselves with these details before making comparisons.

Always consider economic factors, market conditions, and investment strategies when evaluating the potential performance of a portfolio. There are no guarantees that a strategy will match or outperform any particular benchmark.