The Honest Backtest - look-ahead, survivorship and overfitting

The whole valley on one board: rain as return, drought as a crash, the borrowed bucket and the moon price. This lesson builds the tool everyone uses to ask “what would this have paid?”, and then catches the three ways it lies.

Before you start. From A Day That Should Never Have Happened - volatility, the bell curve and fat tails: volatility is how widely returns swing. From One Cloud Over Every River - diversification, correlation and Markowitz: mixing assets that do not move together cuts the swing. From What the Valley Pays You to Carry the Drought - risk premium, beta, CAPM and the Sharpe ratio: the Sharpe ratio is return per unit of swing. From The Map Is Not the Territory: a number you steer by stops telling the truth (Goodhart’s law). The code is standard-library Python; you can read the lesson without running it.