✅ Checkpoint: Strategy Design and Backtesting

By Anh Le

Quiz

  1. Which set of slots must every testable trading rule set fill?
    • Entry, exit, and stop loss only
    • Entry, sizing, and a profit target
    • Universe, signal, and Sharpe ratio target
    • Universe, entry, exit, and sizing (plus a timing convention)
  2. In the 20/60 moving average crossover example, why does the strategy not trade before bar 60?
    • The 60-day slow average is undefined during the warm-up period, so no valid signal exists
    • The 20-day average needs 60 bars to become valid
    • Trading is only allowed after the first 60 trades
    • The first 60 bars are always a holiday period with missing data
  3. Your rule computes a signal from bar t's close. Where should the fill happen to avoid lookahead bias?
    • At bar t+1's open
    • At bar t's close, the same price that generated the signal
    • At bar t+1's close, after the position is marked
    • At bar t's open, before the signal is known
  4. A strategy does 250 round trips per year. Slippage is 5 bps per fill and commission is 5 bps per fill. Roughly how much does execution cost per year?
    • About 25% of capital
    • About 50% of capital
    • About 12.5% of capital
    • About 5% of capital
  5. The largest peak-to-trough decline in an equity curve is called the ____.
  6. A backtest that looks brilliant on the exact data used to choose its parameters is suffering from ____.
  7. Write the full rule set for your capstone strategy using the five slots (universe, entry, exit, sizing, timing). Then check it for ambiguity and warm-up handling.
  8. Take your capstone backtest output and defend whether it shows a real edge. Use the equity curve, trade log, and at least one robustness check.

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