Back-testing strategies and back-testing biasing:

Back-testing is the process of analyzing the historical data especially stock and trading data and predicting the desired results for upcoming trades. There are different trading strategies which will be helping for long term investments as well as short term investments. I will mention you some of them:

1. Filteration: This is the most used strategies used for back-testing where number of strategies are filtered through pipeline and the most favorable strategies are showed as results.

2. Modeling: The model which will be implemented for getting the desired back testing results. The parameters to keep in mind while creating these models are transaction costs, order routing, latency, and market micro structure.

3. Optimization: Optimization bias have the more impact on back testing than other back testing biasing. This is used for increasing the performance of back-testing criteria, modifying the quantity and values of parameters with strategy.

4. Verification: It is special strategic pipeline for testing different strategies, by using external strategies and checking performance on the basis of Sharpe Ratio and Draw-down. In verification, signals are accessed which are generated by external strategies.

Different back testing biasing: Optimization Bias, Look Ahead Bias, Survivorship Bias, Cognitive Bias.