10 trading truths nobody tells you

1. A backtest is a hypothesis, not a forecast

It tells you how a rule would have behaved on one stretch of history. The market that produced that history won't repeat it exactly.

2. Costs compound like returns do

At 0.15% per side, a round trip costs about 0.3%. A hundred round trips leave 0.997¹⁰⁰ ≈ 0.74 of your capital: roughly a quarter gone to costs before the strategy earns anything.

3. Trading on the close you decided on is cheating

If a signal uses today's close, the earliest real fill is tomorrow's open. Backtests that fill at the same close quietly borrow information from the future.

4. The more variants you try, the better the best one looks by luck

Test a hundred parameter sets and one will shine on noise alone. A good result surrounded by good neighbours is worth more than a lone peak.

5. Today's index is made of survivors

Testing on the stocks that are in an index now leaves out the ones that collapsed and were removed. History looks kinder than it was.

6. A few trades often make all the profit

In one of our own tests (AAPL, 20-day SMA with an RSI filter, two years) the three best trades made 128% of the net profit. Without them the strategy lost money.

7. A high win rate can still lose to doing nothing

An RSI 30/70 rule on SPY won 80% of its trades from 2016 to 2026 and returned +72%. Simply holding SPY returned +314%.

8. Losses are asymmetric

A 50% loss needs a 100% gain to get back to even. Avoiding deep drawdowns matters more than catching every rally.

9. A few years of results say little

A Sharpe ratio estimated from a short history has a wide margin of error, as Andrew Lo showed in 2002. Two good years can be luck.

10. Most active traders trail the market

Barber and Odean studied 66,465 US households from 1991 to 1996: the 20% that traded most earned 11.4% a year while the market returned 17.9%.

Educational content, not investment advice. Past results, including the ones above, don't predict future returns.