A backtest is a controlled experiment. You hold the world still, replay it, and watch your strategy perform. Live trading is the world refusing to hold still. The distance between those two is where most strategies quietly die, not because the idea was wrong, but because the backtest was answering an easier question than the one live trading asks.
The backtest assumes a kinder world
Every backtest makes assumptions, and the comfortable ones are the dangerous ones:
- That orders fill at a clean price, instead of paying the spread and slippage.
- That data arrives on time and complete, instead of with gaps and latency.
- That the calendar is simple, instead of full of holidays, half-days, and expirations.
- That the account starts exactly where the strategy expects, instead of holding yesterday’s position.
- That nothing needs watching, because nothing is actually live.
None of these are strategy assumptions. They’re world assumptions, and the backtest gets to make them for free. Live trading charges for every one.
Where the strategy “stops working”
So a strategy that looked great in research goes live and does something baffling. The temptation is to conclude the edge was fake. Sometimes it was. But just as often the strategy is doing exactly what it always did, it’s the world around it that changed. The fills are worse. The data is messier. A holiday it never saw in testing shows up. The account wasn’t flat.
The strategy didn’t stop working. The assumptions stopped holding.
The uncomfortable implication
This means the way to keep a backtest alive on the road to live isn’t mostly about the strategy. It’s about closing the gap between the experiment and the world: model the fills, respect the calendar, know your broker state, watch the runs. That’s infrastructure work, and it’s tedious, and it’s exactly the part that gets skipped because the strategy is more fun.
Which is the whole point. The strategies that survive aren’t necessarily the cleverest. They’re the ones whose authors took the gap seriously, or used something that took it seriously for them.