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Question about incremental Backup.

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All in all my goal for this backup would be to minimize disk usage and try to retain as much space as possible. I really have no need to have multiple versions of files so I have set it to create a full version after 1 incremental version and then store no more than 1 recent chain.

I want to always have the most recent version of the file without all the previous versions but I am a bit confused as to how it creates a full version. Does it essentially start over with a full backup from the source drive or does it consolidate the existing full backup and incremental backups into one? I just don't want to backup all of my data and realize I am basically just setting it up to do full backups and write a ton of information every day.

On another note how is it determining if a file should be backed up? Is it reading the whole source drive and then looking what has been modified or is it a more sophisticated method?

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Grover's guides (left margin of the forum) are the best resource for information on various backup retention schemes.

For disk/partition backups, ATI does not look at files or file metadata. When deciding what to add to incremental or differential backups, it looks for disk sectors that have changed.

That seems to imply that if I do a defrag and move a lot of files around thus changing sectors, the next incremental will be huge??

Correct.