Five ways a backtest lies to you
In rough order of how often I've caught myself:
1. Look-ahead. Using a value the bar hadn't finished producing yet. The most common and the most flattering.
2. Survivorship. Testing on the names that still exist today.
3. Optimistic fills. Assuming you got the price you saw.
4. One-outlier profits. Remove the best trade; if the edge disappears, you don't have an edge, you have an anecdote.
5. Too many knobs. Every parameter you tune is another chance to fit the noise.
None of these are exotic. They're just easy to not look for when the equity curve is pretty.
BacktestBetty16 posts · 0 followers
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