Backtest

A backtest runs a set of exact trading rules over past market data to see what they would have done. A good one includes every charge, realistic fills, delisted stocks and enough trades to rule out luck. It is the best evidence available before risking money, and no promise about the future.

Most backtest mistakes flatter the result: survivorship bias, look-ahead bias, missing costs, perfect fills and overfitting. A strategy should be tested as one account with a cash limit, over a crash and a sideways market as well as a rally.