Every quantitative trader has had this experience: backtest shows 200% annual returns. Live trading shows -15%.
The problem is almost never the strategy. It's the backtest. Most backtesting engines lie through optimistic assumptions.
The 5 Lies Most Backtests Tell
Lie 1: Perfect Fills
Most engines assume your order fills at the exact price you see. In reality:
- Market orders fill at the ask (buying) or bid (selling), not the mid-price
- Large orders move the market (slippage)
- During volatility, fills can be 5-10 ticks worse than expected
My engine models this: \
