@Adam, I'd be happy to explain. For the fund, we'll see how the algorithm performs in different market conditions, not only the performance in recent years. We'd like to see a backtest over 10 years (not an exact number) to see more data. As you're writing the algo, test how it performs in 2008, 2011 and other turbulent times. If the algorithm does well in the last 2 years, but loses money when running a 5,7, or 10 year backtest then it's very likely it was overfit to the recent data.
To prevent from overfitting, I encourage you to first think about your economic rationale. Why does this strategy work? What would cause this strategy to stop working? Then begin coding the details and testing over various periods. If you find something promising, enter it in the contest or start paper trading to see out of sample data. The more data it accumulates the better; paper trading is the true test.
The tearsheet is a very powerful tool to visualize the data. You'll see the length of drawdown periods, cumulative return trends, position concentration, and more. We held a webinar showing how to read the tearsheet plots and interpret the data; if you missed it check out this video: https://www.youtube.com/watch?v=-VmZAlBWUko
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