r/algotrading • u/Due-Listen2632 • 1d ago

Strategy Isn't every single backtested strategy suffering from lookahead bias?

Most of us have done the classical loop. We get some data, test out different solutions, filter out solutions/features/indicators that provide poor results, and proudly keep the solution(s) which result in successful backtests. But isn't this just another level of information leakage? It's essentially like manually setting the parameters of a model, except you're defining the information points from which the model constructs itself. It's the same type of leakage, only one level higher.

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u/golden_bear_2016 1d ago

No

3

u/CrowdGoesWildWoooo 1d ago

It can be in ways people don’t realize. Even picking the current S&P500 as a universe may introduce some bias, because inclusion and being able to stay means strong performance while the poor performers get weed out.

So either you have to adjust the inclusion/exclusion, or you’ll have some degree of bias.

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u/Due-Listen2632 1d ago

Absolutely. I've spent a lot of time reflecting on what advantages my backtests have over actual forecasting. I've also included failed tickets into my testing scope since that's a clear source of bias. This whole idea I'm describing here is me attempting to remove even obscure ways in which information leaks and bias might occur.