by Alexander Bobyl, Linda Boudjemila, Vadim Davydov, Vladislav Malyshkin
Continue on SelfMadeQuant
Suggested foundations for trading research and honest backtests and financial time series. Specialist prerequisites vary by paper.
Use only information available at the simulated decision time.
Separate model selection from the final evaluation.
Check whether a relationship can be estimated consistently over time.
Read the fitted relationship and its residuals.
Reconcile signals, executions, positions and P&L.
Include the costs that can erase a paper strategy.
Study long-run relationships without confusing them with correlation.
Choose a reproducible strategy, specify the trading rule, and test what remains after costs and estimation uncertainty.