For Business

Backtesting & Statistics

How to Backtest a Strategy by Hand

Backtesting by hand is covering the right side of a chart, revealing one bar at a time, reading a written rule at every bar and writing each trade on a ruled sheet with five columns. This paper shows you the method in five lines; the idea as a card over the chart, drawn on real hourly closes of the euro in August 2026; the chart as the test sees it at the bar where the rule fires, with nothing to the right; the sheet with three real rows from the example week; and the F12 key on your platform, which reveals exactly one bar per press.

Difficulty
Beginner
Reading time
5 min
Pages
8
Reviewed by
Saman Rahbar

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By hand, in five lines

Backtesting by hand takes a chart, a card, a pencil and a ruled sheet. The rule is written in one sentence before you start. You scroll the chart back to where the test begins, cover the right side with a card, and reveal one bar at a time; when the rule fires you write the row, the date, the price bought at, the price sold at, and the pips, where a pip is the fourth decimal place of the price, and move on. A hundred bars is an evening and a year of daily bars is two. The trap is peeking: a bar seen before it is revealed poisons the whole sheet, because you can no longer tell what the rule saw from what you saw.

A card over the right side of the chart

Picture a card over the right side of the chart, with real hourly closes of the euro against the dollar from 24 to 26 August 2026 drawn as the line. Everything left of the card has been revealed and the rule has been asked at each of those bars; everything under the card has not happened yet, as far as the test is concerned. The card slides right one bar at a time, and the eye never gets ahead of the rule. That is the whole method: it makes the past arrive one bar at a time, which is the only way the future ever arrives, and it is the difference between a backtest and a look at a chart.

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