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Backtesting Leakage

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Your question is Backtesting Leakage. Take a moment with it on the right.

Talk me through your thinking if you like. When you're confident, submit your answer and I'll grade it like a real screen (7/10 or better passes).

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Problem

How do you handle leakage when backtesting a trading strategy?

Explain how you would identify look-ahead, feature, label, survivorship, and cross-sectional leakage before trusting performance results. Describe a practical validation design, including timestamp controls, point-in-time data, walk-forward testing, and checks for leakage introduced during preprocessing or portfolio construction. Address how you would respond when the strategy has no reliable ground truth beyond future returns.