Why it matters
Overfit strategies fail live because reality is not the backtest.
Decision use: treat this term as a risk input. If you can’t observe it, you can’t size for it.
Common trap
Adding parameters until the backtest looks perfect.
Example
Slight parameter changes collapse performance.
Operational cue: if you can’t point to it on the chart, in the DOM, or in your broker logs, treat it as a story and trade smaller.
Notes
Robustness is the antidote: if small changes break it, it’s fragile.
Quick rule
- If you see this repeatedly, you are in a different regime than your model assumes.
- Regime change usually means position size change.
- When in doubt: trade smaller, or don’t trade.