Historical data in trading refers to the past records of trading activity for a particular security, asset, or financial instrument. This includes price, volume, volatility, and other related market information over various time periods.
Traders and investors use historical data to analyze trends, patterns, and changes in the market, in order to make informed predictions about future price movements. They might use different kinds of technical analysis, statistical models, and machine learning algorithms to do this.
Historical data can range from intraday data (which provides data points within the trading day at intervals such as 1 minute, 5 minutes, 15 minutes, etc.) to daily, weekly, monthly, or yearly data. Some traders might be more interested in long-term trends and therefore focus on daily and yearly data, while others might be day traders or high-frequency traders who are interested in intraday data.
Historical data is vital for backtesting trading strategies. Backtesting involves applying a trading strategy or model to past data to see how it would have performed. By doing this, traders can gain insights into the effectiveness of a strategy before risking real money in live markets.