Future Leak

Future leak is an inadvertent look into the future by a trading strategy backtesting program. This occurs when the code is written such that it references data which would not have been available when the model’s trading decision would have been made. Some common indicators such as the “zig-zag” indicator look into the future.

Some data even looks into the future. One common example of this is most fundamental data used in backtest. Fundamental data such as earnings-per-share (EPS) is commonly revised after the initial release. If a historical database is used that does not include “snap-shot” or “as-reported” data, future leak will result. Future leak almost always causes the system performance to be overstated relative to the actual expected performance.