FactorSage

Chapter 3

Backtesting

What a backtest is, the rules that drive it in FactorSage, and the biases that make raw results misleading.

Lessons in this chapter

  1. 3.1What is a backtest?

    Apply a strategy's rules to historical prices and fundamentals to see how it would have behaved.

  2. 3.2Entry and exit rules

    Buy signals, sell levels, and the structure FactorSage expects.

  3. 3.3Sell levels and the final exit

    How partial exits and a final exit work together in FactorSage strategies.

  4. 3.4Point-in-time universes

    Only test against the stocks that were actually in the index on each historical date.

  5. 3.5Look-ahead bias

    Using information in a backtest that nobody could have known at the time.

  6. 3.6Survivorship bias

    Why testing only against today's surviving stocks makes backtests look better than reality.

  7. 3.7Reading backtest results

    Returns, drawdown, exposure, and benchmark comparison — what to trust and what to question.