glossary
Backtesting and algo trading terms, defined.
Short, citable definitions of the terms behind an honest backtest: overfitting, walk-forward, lookahead bias, deflated Sharpe and more.
Honesty grade →How realistic a backtest's fills were, A to DUpdated Backtest overfitting →When the strategy learned the past instead of a ruleUpdated Walk-forward analysis →Optimise on one window, test on the next, repeatUpdated Lookahead bias →Using tomorrow's price to decide today's tradeUpdated Deflated Sharpe ratio →The Sharpe ratio after discounting for how many variants you triedUpdated Paper trading →Live prices, no real money, every decision recordedUpdated Funding rate →The periodic payment that keeps perps near spot; a real costUpdated Max drawdown →The worst peak-to-trough loss; the number you have to live withUpdated