Why 90% of Backtests Fail

About 9 out of 10 backtests produce wrong or misleading results. This is the number one reason why carefully developed algorithmic trading systems often fail in live trading. Even with out-of-sample data and even with cross-validation or walk-forward analysis, backtest results are often way off to the optimistic side. The majority of trading systems with a positive backtest are in fact unprofitable. In this article I’ll discuss the cause of this phenomenon, and how to fix it. Continue reading “Why 90% of Backtests Fail”