Backtesting Indian Stock Strategies
Understand CAGR, drawdown, Sharpe ratio, transaction costs, slippage, and benchmark comparison before trusting a strategy backtest.
Backtests are simulations, not forecasts
A backtest shows how rules would have behaved historically. It should include costs, slippage assumptions, benchmark comparison, and clear warnings about survivorship and look-ahead bias.
Key checks before trusting a backtest
Check CAGR, max drawdown, volatility, Sharpe ratio, trade count, benchmark return, transaction costs, slippage, and whether the strategy accidentally uses future data.
Drawdown matters
High returns can hide painful interim losses. Max drawdown, volatility, and the time spent underwater are often more useful than headline CAGR alone.
Explain the rules
A strategy is easier to trust when entry, exit, ranking, rebalance, and risk rules are explicit. Avoid black-box signals in production research workflows, and treat every result as research, not personalized advice.