Backtesting Best Practices for Prediction Markets

Why Backtest?

Backtesting lets you test trading strategies against historical data before risking real money. It helps you understand:

Common Pitfalls

1. Survivorship Bias

Only testing on markets that are still active. Include settled markets in your dataset.

2. Look-Ahead Bias

Using information that wouldn't have been available at the time of the trade.

3. Overfitting

Creating strategies that work perfectly on historical data but fail in live trading.

Best Practices

Use Sufficient Data

Walk-Forward Testing

Realistic Assumptions

Using SafeArbitrage's Backtesting Engine