How to avoid curve fitting when backtesting?

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How to avoid curve fitting when backtesting
Curve fitting in trading refers to the mistake of modeling a strategy based on market noise instead of true market behavior, leading to poor performance in live trading. Understanding curve fitting is crucial to avoid potential pitfalls and achieve lasting success.
In this video, we’ll explore what curve fitting is, why it’s dangerous, and how to avoid it through robust testing methods like in-sample/out-of-sample testing, walk forward testing, and Monte Carlo simulations. Learn why simplicity and parameter stability are key to designing effective trading strategies.
For a deeper dive into backtesting and more, check out our backtesting course. Don’t miss out on ensuring your strategies are future-proof!
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✅ RISK DISCLAIMER
Quantified Strategies (SIA Lofjord) is not an investment advisor. The content and information provided are educational and should not be treated as financial advisory services or investment advice. Trading and investment in securities involve substantial risk of loss and is not recommended for anyone who is not a trained trader or investor - it shall be conducted at your own risk. It is recommended that you never risk more than you are willing to lose. Leverage can lead to substantial losses. Any use of leverage, margin, or shorting is at your discretion. Quantified Strategies (SIA Lofjord) is not responsible for any losses that occur as a result of its content and information.
Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, Since the trades have not been executed, the results may have under or overcompensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs, in general, are also subject to the fact that they are designed with the benefit of hindsight. No representations are made that any account will or is likely to achieve profit or losses similar to those shown.

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