Comparison between backtesting, scenario analysis and paper trading
Backtesting differs from scenario analysis and paper trading in testing the effectiveness of a trading strategy. For example, if an impending lockdown were to occur in the UK in response to another Covid-19 outbreak, this would affect market prices. In this regard, it is advisable to analyze the performance of certain sectors and strategies that have worked well in the past.
on the contrary, Situation analysis A hypothetical market tests a strategy against a set of conditions that may not exist in historical data.
For example, if Covid-19-related regulations persist, you can run a simulation to test the performance of a healthcare-related equity portfolio using a specific strategy. Several key variables such as changes in interest rates and inflation must be taken into account.
the ” paper business (paper trading), involves applying a trading strategy to current market conditions without risking your capital.
Clients test their strategies on paper, mock up the trading platform, trade the correct entry and exit points under specific conditions and document the results.
Run these simulations in ProRealTime (PRT) for best results This platform allows you to test a strategy, move forward in time, and use a market screener to filter stocks that match your risk level.
You can trade today’s markets risk-free by opening an IG demo account.