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Sorry for this being a basic question.

If I take a stock’s historical data and check for some rule I have found to buy/sell = what happened if I bought and sold this stock according to this rule in the past 2 months every day? then I get a clear answer - “you would make profit in 75% of the days”.

Would this be any indication I should trade based upon this rule ? Or is it a bad approach because the past always produce a certain result?

If not- why, if yes- does algo companies use historical data like that?

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If your model is only relating to historical price data of that single stock, then the model wouldn’t be useful. Historical price data is stochastic, and a lot of theory in financial mathematics is based on this idea, meaning the expected value of a stock at any point in the future has no memory of (and is completely independent of) past prices.

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  • $\begingroup$ Stock has no memory but people have, and people trade stocks.. and people’s habits stay the same. $\endgroup$
    – Curnelious
    Commented Sep 25, 2018 at 17:13
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There's a field of study called Statistics, which to a large extent tries to answer questions like that both in a financial setting and in experimental sciences. Try to read something about it. To your question, yes, people use the historical data this way, but usually, they perform a more rigorous statistical analysis, than just counting the number of times when the model is correct.

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