Postdictive Error

A postdictive error occurs when one uses information that would only be available after the fact. For example, a trading system may incorporate daily highs and lows into its trading rules. A system that initiates buy trades at daily lows and sell trades at daily highs commits postdictive errors. When prices are at these points, it is not known that they are until the end of the trading day. The trading system is unrealistic. Backtests would yield fantastically high trading profits. System testers must be vigilant against such postdictive errors and their impossibly high backtesting profits.

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