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Checklist, in Backtesting & Validation

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 items. Published May 26, 2026. By AI Fin Hub Research.

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Sections

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Section 1

Phase 1: Edge evidence

3 items

Use the 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).

Use the 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.

Section 2

Phase 2: Risk and sizing

3 items

Use the 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.

Use the Kelly Criterion Calculator: Size positions with full, half, quarter, or eighth Kelly and stress-test the choice with a drawdown Monte Carlo simulator. Client-side. Private by default.

Use the 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.

Section 3

Phase 3: Capacity and operations

3 items

Use the Statistical Arbitrage Capacity Calculator: Maximum strategy AUM from alpha, slippage, fees, daily volume and volatility, and signal half-life. Square-root impact closed-form.

Use the 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.

Section 4

Phase 4: Exit and accountability

3 items

Use the 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.

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

  1. The Deflated Sharpe Ratio: Correcting for Selection Bias, Backtest Overfitting and Non-Normality , Bailey, Lopez de Prado, Journal of Portfolio Management (2014)
  2. A New Interpretation of Information Rate (Kelly Criterion) , J. L. Kelly Jr., Bell System Technical Journal (1956)

Keep the topic connected

  • Checklist Trading Strategy Validation Checklist

    A sign-off checklist for validating a trading strategy before risking capital: data hygiene, out-of-sample testing, trial accounting, deflated Sharpe, and risk backtests.

  • Checklist Paper-to-Live Transition Checklist

    Paper-to-live transition checklist: reconcile fills against real costs, start at minimum size, set kill switches, and verify live matches backtest.

  • Guide How to Validate a Trading Strategy

    A step-by-step process for validating a trading strategy without fooling yourself: out-of-sample testing, trial accounting, deflated Sharpe, and a VaR backtest.

  • Learn Kelly Criterion

    What the Kelly criterion is, when full Kelly blows up, and why most working quants size at half- or quarter-Kelly.