The practice of applying trading rules over historical market data to gain insight as to how such rules might continue to perform.

creating a hypothetical portfolio performance history by applying current asset selection criteria to prior time periods

Procedure for monitoring the quality of value-at-risk models. Backtesting is used to check whether, retrospectively over a longer period of time, the estimated potential losses based on the VaR approach were actually exceeded substantially more regularly than would be expected given the confidence level applied.