quant-backtesting-workbench
From Theory to RealityThis interactive workbench demonstrates why rigorous backtesting is non-negotiable in quantitative finance. Explore how common pitfalls, validation methods, and risk management choices transform a strategy from a "false discovery" into a potentially robust system. The Seven Deadly Sins of BacktestingFlawed backtests create the illusion of profitability. Understanding these common biases is the first step toward building a strategy that works in the real world, not just on paper. 😈
OverfittingCurve-fitting a model to historical noise instead of finding a true signal. The strategy perfectly memorizes the past but has no predictive power. 🔮
Look-Ahead BiasUsing information in the simulation that would not have been available at the time, like using a day's closing price to trade at that day's open. 👻
Survivorship BiasTesting only on assets that "survived" to the present, ignoring failed or delisted companies where the strategy would have lost money. 💸
Ignoring CostsForgetting to model transaction costs like commissions and slippage, which can turn a profitable strategy into a losing one. The Interactive Validation LabFinancial data is not random. Standard cross-validation causes "data leakage," leading to inflated results. Select a method below to see how respecting the timeline produces a more realistic performance estimate.
Walk-Forward Analysis (WFA) is the industry standard. It simulates reality by training the model on a past window of data and testing it on a subsequent, unseen window. This process is rolled forward in time, creating a chain of true out-of-sample results and providing a robust defense against overfitting.
The Bet Sizing SimulatorA good signal is useless without proper risk management. Bet sizing determines how much capital you risk per trade. Select a method to see its profound impact on portfolio growth, volatility, and risk of ruin.
Fixed Fractional sizing risks a constant percentage of equity per trade (e.g., 2%). It is excellent for capital preservation and compounding, automatically reducing risk during drawdowns.
Performance DashboardA holistic view of performance requires a suite of metrics. This dashboard reflects the results of the choices made in the Bet Sizing Simulator, revealing the trade-offs between return, risk, and volatility. Sharpe Ratio Max Drawdown -18.5% Calmar Ratio 0.98 Profit Factor 1.82 |
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