Mini Case 001：Hidden Look-Ahead Bias in a Profitable Financial Backtest 

1. Case Purpose

This mini case demonstrates how a financial strategy can appear profitable in a conventional backtest, while a structural audit reveals that the result is not reliable because of look-ahead bias, data leakage, and missing walk-forward validation.

2. Conventional Backtest Result

A model is tested on daily market data. The original backtest reports:

At first glance, the strategy looks strong. The return is high, the Sharpe ratio is acceptable, and the drawdown appears manageable. 

3. Structural Audit Finding

After applying a structural audit, several hidden problems are found.

The audit shows that the reported performance may not represent a real tradable strategy. 

4. Corrected Audit Result

After removing look-ahead bias, applying walk-forward validation, and adding transaction costs, the result changes sharply.

The strategy no longer supports the original claim. 

5. Key Lesson

The main lesson is:

A profitable backtest is not proof of a reliable strategy.

A backtest becomes meaningful only after checking:

• whether the signal uses only information available at the decision time;

• whether the train/test split is clean;

• whether transaction cost and slippage are included;

• whether the model survives walk-forward validation;

• whether performance remains stable across different market regimes;

• whether the result can be reproduced.

6. Audit Conclusion

Conventional conclusion:

The strategy appears to generate alpha.

Structural audit conclusion:

The alpha claim is not yet reliable. The reported performance may be inflated by look-ahead bias, data leakage, missing transaction costs, and lack of walk-forward validation.

7. Service Relevance

This case illustrates why financial models, trading strategies, AI investment tools, and backtest reports may need an independent audit before they are used for client reporting, investment decisions, compliance review, or product marketing.

8. Disclaimer

This mini case is for research, education, and methodological demonstration only. It is not investment advice, trading advice, legal advice, or a recommendation to buy or sell any financial product.

9. Short Post

English:

A profitable backtest is not always a reliable strategy.
In this mini case, a trading model first appears to produce strong returns. But after a structural audit checks for look-ahead bias, data leakage, missing transaction costs, regime shifts, and reproducibility gaps, the result changes sharply.

The key lesson: financial model results need audit, not just performance charts.