While that's an important exercise, it's not what most people mean when they refer to backtesting. The term backtesting is used for when you have a clearly defined set of trading rules and apply them to historical data. Since you are testing your strategy's performance against market movements that have already occurred, this practice is called backtesting.
The advantage of backtesting is that it can let you place practice trades against years and even decades of historical data. The disadvantage is that, as @TradeViper pointed out, market conditions are constantly changing.
Will an approach that worked in the past continue to work in the future? That is why it is a good idea to do both backtesting and forward testing. Forward testing is when you apply your trading rules to the current market to assess how your strategy performs now. This can be done either with a demo account or a small live account.