Backtesting is a financial analysis technique used to evaluate the performance of a trading strategy or investment model by applying it to historical market data. This process helps traders and analysts understand how a strategy would have performed in the past, allowing them to assess its potential profitability and risk before deploying it in real-time trading. Successful backtesting requires robust data, careful consideration of transaction costs, market conditions, and the avoidance of overfitting, ensuring that the results are indicative of future performance.