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Backtesting & Validation Checklist

Pre-Deployment Trading Strategy Review

This is the meeting-room sign-off, run after backtest hygiene and validation are complete. It assumes the statistics passed and asks the organizational questions: is the risk bounded, is the operation reliable, and is the exit defined.

12 ITEMSPublished May 26, 2026Live Content
By AI Fin Hub Research · AI Fin Hub Team

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Progress 12 items Pro tips

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Move item by item and keep your place

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Checklist Sections

Work in focused batches instead of one long wall

Section 1

Phase 1: Edge evidence

3 items
Use The ToolCalculators

Deflated Sharpe Ratio Calculator

Bailey & López de Prado deflated Sharpe — corrects observed Sharpe for selection bias across K trials. Reports deflated Sharpe, PSR (probability of skill).

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Use The ToolPlaygrounds

Walk-Forward Validator

Upload a returns CSV. Rolling or expanding IS/OOS windows, per-window Sharpe, walk-forward efficiency, and a concatenated OOS equity curve. Catches regime.

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Section 2

Phase 2: Risk and sizing

3 items
Use The ToolCalculators

Position Sizing under Edge Variance

Bayesian-Kelly bet sizing when your edge is itself uncertain. Compare deterministic Kelly, Bayesian-adjusted, and conservative lower-bound versions.

ToolOpen ->
Use The ToolCalculators

Fractional Kelly Sizer

Map conviction tiers to fractional Kelly bet sizes with a drawdown Monte Carlo simulator. Client-side. Private by default.

ToolOpen ->
Use The ToolPlaygrounds

VaR Backtest — Kupiec & Christoffersen

Paste P&L + VaR series and run Kupiec POF, Christoffersen independence, and joint conditional-coverage tests. Likelihood-ratio χ² p-values.

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Section 3

Phase 3: Capacity and operations

3 items
Use The ToolCalculators

Statistical Arbitrage Capacity Calculator

Maximum strategy AUM from signal half-life, daily volume, slippage, fees, and target Sharpe. Square-root impact closed-form.

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Use The ToolComparators

Broker API Comparator

Alpaca vs IBKR vs Tradier vs Schwab vs Robinhood — compare auth, rate limits, order types, market data, MCP, and fees before wiring a line of code.

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Section 4

Phase 4: Exit and accountability

3 items
Use The ToolCalculators

Drawdown-Recovery Markov Simulator

Time to recover from an N% drawdown given monthly Sharpe + skew + kurtosis. Cornish-Fisher Monte Carlo, percentile distribution of recovery months.

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Pro Tips

Small moves that make the checklist easier to finish

The shutdown rule is the most important line in the document. Decide what kills the strategy while you are calm, because mid-drawdown is exactly when judgment fails.
Size from edge uncertainty, not the point estimate. The backtest Sharpe is a sample; betting as if it were the truth is how a real edge still blows up.
A strategy with a clear economic story is not just more trustworthy, it is more debuggable. When it breaks, the story tells you which assumption to check first.

Sources & References

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Planning estimates only — not financial, tax, or investment advice.