Re-running a strategy under deliberately hostile assumptions to find what breaks it before the market does.
Useful stresses fall into three groups. Cost stresses: triple the spread, add a tick of slippage to every fill, assume the worst price of the bar. Data stresses: remove the best month, insert a three-day gap where the feed died, replay 2008 and March 2020. Structural stresses: halve liquidity, assume no fill on limit orders that only touched the level.
The output is not a number, it is a list of dependencies. If the strategy dies when limit orders need the price to trade through rather than touch, then it is an execution-sensitive strategy and belongs on a different infrastructure budget.
Example: a scalping system showing $8 average profit per trade against an assumed $4 round-trip cost is one tick of extra slippage away from breakeven. That is a stress test result, not a backtest result.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Slippage on a market order. You click at 20.00, but only 300 shares are resting there, so the rest of the order fills at 20.01, 20.03 and 20.04. The average price paid is 20.02, and that two-cent gap is slippage.The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.
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