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Module 01 · Concepts

Signals of a useful backtest

Good validation gives you reasons to trust or reject the process. Bad validation gives you a screenshot.

Assumptions
Make the environment believable

Date range, instrument set, and capital base should resemble the desk you plan to run rather than the dataset that flatters the strategy most.

Path
The equity curve should be readable

A strong terminal profit can still hide intolerable drawdowns, unstable streaks, or fragile dependence on one period of market behavior.

Decision
A pass means worthy of monitoring, not guaranteed

Backtesting narrows uncertainty. It does not remove slippage, changing regimes, liquidity shifts, or execution drift in live conditions.

In this lesson
  • Make the environment believable
  • The equity curve should be readable
Try it — do costs eat the edge?

A backtest that ignores costs lies. Each round-trip pays commission and slippage. See how a thin gross edge survives — or doesn't — once real costs are modelled.

Gross return
—
Net return
—
Cost drag
—
Backtesting trap to avoid

Do not tune until the bad period disappears.

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