Glossary
Backtest
Simulating how a strategy would have performed on historical data. Useful but easy to fool yourself with — look-ahead bias, overfitting and survivorship bias all inflate results.
In plain terms
The classic failure modes: look-ahead bias (using information that wasn't available yet), overfitting (tuning until the past looks perfect), survivorship bias (testing only on companies that still exist), and ignoring costs, slippage and taxes.
A backtest can only ever disqualify a strategy, never prove one. We treat a good backtest as permission to keep testing — out-of-sample, after cost — not as evidence of future returns.
Related terms
Educational definitions only. Not investment advice.