Seven Ways Trading Backtests Mislead and the Checks That Catch Them

A well-performing backtest can be misleading, often unintentionally, and traders frequently find strategies collapse once real money is involved. The article attributes this less to changing markets and more to tests that were never reliable evidence in the first place. It outlines seven common pitfalls, including testing many configurations and reporting only the best, using data unavailable at decision time, and ignoring delisted companies. It also covers unrealistic trading costs, dependence on a single favorable period, and failing to compare results against simple baseline rules. The author argues that a backtest's main value lies in filtering out losing strategies rather than confirming winners.