Backtesting: Why Most Profitable-Looking Strategies Are Not

A backtest decides which trading strategies get capital, and it is the most misleading artifact in quantitative finance. This path explains why: a backtest is a counterfactual rather than a measurement, mechanical biases like look-ahead and survivorship all inflate it in the same direction, and selecting the best of many trials produces an impressive result even when nothing works. Covers the deflated Sharpe ratio, the probability of backtest overfitting, why costs scale with size and impose a capacity ceiling, and a research protocol whose output you can actually believe.