From d387d567c56ef9a29227743970d6aee562ca3402 Mon Sep 17 00:00:00 2001
From: I Luk Kim <yirugi@gmail.com>
Date: Thu, 12 Mar 2026 22:09:28 -0700
Subject: [PATCH] =?UTF-8?q?fix:=20correct=20equity=20calculation=20?=
 =?UTF-8?q?=E2=80=94=20use=20market=20value,=20not=20unrealized=20PnL?=
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equity was computed as cash + unrealized_pnl where unrealized_pnl =
(close - entry) × shares. Since cash already had entry cost subtracted,
this double-counted the cost basis:

  buggy:   equity = (initial - entry×shares) + (close - entry)×shares
                  = initial + close×shares − 2×entry×shares  ← WRONG

  correct: equity = cash + market_value
                  = (initial - entry×shares) + close×shares
                  = initial + (close − entry)×shares          ← RIGHT

This caused drawdown to spike to ~73% the instant a position opened
(e.g. TSLA $330 × 222 shares → equity appeared to drop from 100k to
27k), falsely triggering the kill switch at 25% and blocking all
subsequent entries.

Before fix: 3 trades, +0.08% return, 39.2% max drawdown (fake)
After fix:  10 trades, -2.63% return, 4.24% max drawdown (real)

Also: when bar data is missing, positions now use entry_price as
fallback market value instead of treating the position as worthless.

Co-Authored-By: Claude Opus 4.6 <noreply@anthropic.com>
---
 apps/backtester/run.py | 41 +++++++++++++++++++++++++++++++++--------
 1 file changed, 33 insertions(+), 8 deletions(-)

diff --git a/apps/backtester/run.py b/apps/backtester/run.py
index 9ea98b8..762bf27 100644
--- a/apps/backtester/run.py
+++ b/apps/backtester/run.py
@@ -234,8 +234,11 @@ class BacktestRunner:
         self._open_positions = still_open
 
         # --- Compute current equity for kill-switch check ---
-        unrealized = self._compute_unrealized_pnl(date)
-        self._equity = self._cash + unrealized
+        market_value = self._compute_positions_market_value(date)
+        unrealized = market_value - sum(
+            p.entry_price * p.shares_open for p in self._open_positions
+        )
+        self._equity = self._cash + market_value
         self._peak_equity = max(self._peak_equity, self._equity)
         drawdown_pct = (
             (self._peak_equity - self._equity) / self._peak_equity * 100.0
@@ -281,14 +284,23 @@ class BacktestRunner:
                     self._open_positions.append(pos)
                     self._cash -= pos.entry_price * pos.shares_total
                     self._daily_new_risk_used += plan.risk_dollars
-                    # Update portfolio state for next candidate in same day
+                    # Update equity and portfolio state for next candidate
+                    mv = self._compute_positions_market_value(date)
+                    self._equity = self._cash + mv
+                    ur = mv - sum(
+                        p.entry_price * p.shares_open
+                        for p in self._open_positions
+                    )
                     portfolio_state = self._build_portfolio_state(
-                        date, drawdown_pct, self._compute_unrealized_pnl(date)
+                        date, drawdown_pct, ur
                     )
 
         # --- Record daily equity curve snapshot ---
-        unrealized_final = self._compute_unrealized_pnl(date)
-        self._equity = self._cash + unrealized_final
+        market_value_final = self._compute_positions_market_value(date)
+        unrealized_final = market_value_final - sum(
+            p.entry_price * p.shares_open for p in self._open_positions
+        )
+        self._equity = self._cash + market_value_final
         self._peak_equity = max(self._peak_equity, self._equity)
         final_drawdown = (
             (self._peak_equity - self._equity) / self._peak_equity * 100.0
@@ -316,14 +328,27 @@ class BacktestRunner:
             )
         )
 
-    def _compute_unrealized_pnl(self, date: dt.date) -> float:
+    def _compute_positions_market_value(self, date: dt.date) -> float:
+        """Market value of all open positions using today's close.
+
+        Falls back to entry_price when bar is missing (assumes no change
+        rather than treating the position as worthless).
+        """
         total = 0.0
         for pos in self._open_positions:
             bar = self.store.get_bar(pos.plan.candidate.symbol, date)
             if bar and bar.get("close"):
-                total += (float(bar["close"]) - pos.entry_price) * pos.shares_open
+                total += float(bar["close"]) * pos.shares_open
+            else:
+                total += pos.entry_price * pos.shares_open
         return total
 
+    def _compute_unrealized_pnl(self, date: dt.date) -> float:
+        """Unrealized PnL = market_value − cost_basis."""
+        market_value = self._compute_positions_market_value(date)
+        cost_basis = sum(p.entry_price * p.shares_open for p in self._open_positions)
+        return market_value - cost_basis
+
     def _build_portfolio_state(
         self,
         date: dt.date,