What a backtest can tell you
A historical test replays a defined rule on past data. It is useful for checking logic, examining drawdowns and comparing with a benchmark. Its conclusions depend on the data, assumptions and choices made during development.
What paper trading adds
A paper run observes the rule as new prices arrive. This can expose scheduling, state and data issues that are easy to miss in historical work. It also creates a record after the strategy was selected, provided the rules remain frozen.
What neither simulation establishes
A simulated fill is not an executable live quote. Liquidity, spreads, latency and funding may be simplified or absent. Neither a favorable backtest nor a favorable paper record guarantees profitability.
Keep the evidence separate
Save the historical test report and paper observation window as separate artifacts. Label every strategy version and note any changes. Comparing distinct records is more informative than combining them into one attractive curve.
Sources and next steps
- Premiss pricing and paper trading ↗Current free and paid allowances and the distinction from approved live access.
- Investor.gov — investment tools ↗Investor education and the importance of understanding investment risk.