Comment by tim333

I'm not sure about deep technicalities but backtesting is a useful thing to see how some strategy would have performed at some times in the past but there are quite a lot of limitations to it. Two of the big ones are the market reacting to you and maybe more so a kind of hindsight bias where you devise some strategy that would have worked great on past markets but the real time ones do something different.

https://en.wikipedia.org/wiki/Long-Term_Capital_Management was kind of an example of both of those. They based their predictions on past behaviour which proved incorrect. Also if other market participants figure a large player is in trouble and going to have to sell a load of bonds they all drop their bids to take advantage of that.

A lot of deviations from efficient market theory are like that - not deeply technical but about human foolishness.