Backtesting Frameworks

Build robust, production-grade backtesting systems that avoid common pitfalls and produce reliable strategy performance estimates.

When to Use This Skill

• Developing trading strategy backtests
• Building backtesting infrastructure
• Validating strategy performance
• Avoiding common backtesting biases
• Implementing walk-forward analysis
• Comparing strategy alternatives

Core Concepts

1. Backtesting Biases

2. Proper Backtest Structure

Historical Data
      │
      ▼
┌─────────────────────────────────────────┐
│              Training Set               │
│  (Strategy Development & Optimization)  │
└─────────────────────────────────────────┘
      │
      ▼
┌─────────────────────────────────────────┐
│             Validation Set              │
│  (Parameter Selection, No Peeking)      │
└─────────────────────────────────────────┘
      │
      ▼
┌─────────────────────────────────────────┐
│               Test Set                  │
│  (Final Performance Evaluation)         │
└─────────────────────────────────────────┘

3. Walk-Forward Analysis

Window 1: [Train──────][Test]
Window 2:     [Train──────][Test]
Window 3:         [Train──────][Test]
Window 4:             [Train──────][Test]
                                     ─────▶ Time

Implementation Patterns

Pattern 1: Event-Driven Backtester

from abc import ABC, abstractmethod
from dataclasses import dataclass, field
from datetime import datetime
from decimal import Decimal
from enum import Enum
from typing import Dict, List, Optional
import pandas as pd
import numpy as np

class OrderSide(Enum):
    BUY = "buy"
    SELL = "sell"

class OrderType(Enum):
    MARKET = "market"
    LIMIT = "limit"
    STOP = "stop"

@dataclass
class Order:
    symbol: str
    side: OrderSide
    quantity: Decimal
    order_type: OrderType
    limit_price: Optional[Decimal] = None
    stop_price: Optional[Decimal] = None
    timestamp: Optional[datetime] = None

@dataclass
class Fill:
    order: Order
    fill_price: Decimal
    fill_quantity: Decimal
    commission: Decimal
    slippage: Decimal
    timestamp: datetime

@dataclass
class Position:
    symbol: str
    quantity: Decimal = Decimal("0")
    avg_cost: Decimal = Decimal("0")
    realized_pnl: Decimal = Decimal("0")

    def update(self, fill: Fill) -> N...