Expected performance

It should be obvious that the major problem with a backtester that suffers from a lot of dislocations from live trading is that performance expectations derived from simulation results do not hold up in live trading. This throws off the signal validation, strategy validation, risk estimate, risk management, and risk adjustment strategies, but it also throws off risk-reward expectations. Since trading strategies do not live up to expected simulation performance, this can often result in the entire algorithmic trading business failing.

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