Backtesting and paper trading are essential steps in the development and evaluation of algorithmic trading strategies. Backtesting involves running a strategy on historical data to assess its performance and profitability. Traders can utilize specialized software or programming languages to execute backtests, simulating real market conditions. By analyzing the results, traders can refine their strategies and optimize parameters.
Paper trading, on the other hand, involves implementing the strategy in a simulated trading environment without risking real capital. This allows traders to assess the strategy's performance in real-time market conditions without incurring losses. Paper trading platforms provide a safe space to practice executing trades and observe the strategy's behavior. By combining backtesting and paper Algorithmic Trading, traders can gain valuable insights into the strengths and weaknesses of their algorithmic strategies, paving the way for successful live trading.
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