---
title: "Why crypto backtests lie · Trado Strategy Lab"
description: "Look-ahead, missing costs, survivorship and ignored liquidation flatter backtests. A checklist to test any backtest, and how the Lab answers each point."
canonical: "https://algo.trado.trade/learn/why-backtests-lie"
lastModified: "2026-10-06"
---

# Why most crypto backtests lie

A backtest is a story about the past, and the story is only true if it was charged for everything the market would have charged. Most are not. Here are the five ways a backtest flatters a strategy, and the questions that expose each one.

## Five ways a backtest lies

None of these needs bad intent. They are the default behaviour of a simple backtester.

- **Look-ahead.** The strategy trades on information it could not have had: acting on a bar's close at that bar's open, or using an indicator that quietly reads future values. Results look excellent, and no real account can reproduce them.
- **Missing costs.** Fees on every entry and exit, funding on every position held across a funding time, and slippage when the price moves while your order fills. A strategy that trades often can be profitable before costs and a loser after them.
- **Survivorship.** Testing only on the coins that are liquid today leaves out the ones that faded. The universe looks healthier than the one you would have faced.
- **Ignored liquidation.** A leveraged position can be closed by the exchange in the middle of a bar. If the test only looks at closing prices, it never sees the wick that ended the trade.
- **One lucky period.** A strategy that only ever met one kind of market looks robust until the market changes.

## An example with round numbers

Take a hypothetical 20× long entered at 100. With a typical 0.5% maintenance margin it is liquidated near 95.5. Now imagine an hourly bar that dips to 94 and closes at 99. A backtest that only reads closes sees a 1% loss and a position still open. The exchange would have liquidated it, and the loss would have been the whole margin. The numbers are made up to show the mechanism; the mechanism is real on any leveraged perpetual.

## Questions to ask any backtest

Before you trust a result from any tool, ask:

- Are fees, funding and slippage charged on every trade, and can I see the numbers used?
- What is the data granularity? Daily or hourly bars hide wicks that 1-minute bars show.
- Is liquidation modelled, for the margin mode I would actually use?
- Is there a period the strategy was never tuned on?
- How many trades are behind the headline number, and does the tool say when that is too few?
- Does it show results by market condition, or only the average?

## How the Lab answers each one

- **Costs:** every trade is priced after the execution profile's fees, slippage and funding.
- **Wicks:** runs replay 1-minute bars, and exact-exit runs use the trade tape for stop and target fills.
- **Liquidation:** modelled for isolated and cross margin, with a guard that refuses a stop placed beyond the liquidation price.
- **Held-out data:** optimizations validate on a holdout and walk forward through time.
- **An honest verdict:** results are grouped by market regime, the verdict can say “No clear edge” or “Too few trades to tell”, and an evidence meter reads Not enough, Weak, Moderate or Strong. A strategy does not get a green light for paper gains.

## Common questions

### Can any backtest be trusted?

A backtest can be honest about the past without predicting the future. Treat a good one as evidence that an idea deserves a paper trade, not as a forecast.

### How many trades are enough?

There is no magic number. The Lab's evidence meter weighs the number of trades and the span of days, and says “Not enough” rather than giving a score when there is too little to judge.

## Next steps

- [Join the waitlist](https://algo.trado.trade/waitlist)
- [How backtesting works](https://algo.trado.trade/backtesting)

## Related

- [Crypto backtesting after every cost](https://algo.trado.trade/backtesting.md): Backtest crypto perpetuals on years of 1-minute data for 900 coins, after fees, funding, slippage and liquidation, with a verdict that admits weak evidence.
- [Overfitting in backtests](https://algo.trado.trade/learn/overfitting-in-backtests.md): Tune a strategy long enough and the past looks perfect. Why overfitting feels like success, and the checks that expose it: holdouts, walk-forward, stability.
- [Leverage and liquidation guard](https://algo.trado.trade/liquidation-and-leverage.md): At 20×, a move of about 4.5% against you loses the whole margin. The Lab models liquidation, refuses stops past it, and audits the leverage each coin allowed.