How to evaluate a commodity trading system
by Kent Calhoun
The percentage of profitable trades, the average profitable trade, the average losing trade, the
maximum consecutive losing trades, the average profit per closed trade, the largest winning and losing
trades, the number of profitable buys and sells, the average number of days in losing and winning trades,
and the equity return on margin are not what I use to determine whether a commodity trading system can
Just because a system "makes" money doesn't guarantee you will make money. I tested 60 systems that
"made" more than $ 1 million after commissions and slippage over six years, but discovered that 47 lost
the $100,000 beginning equity at some time during the six-year trading period.
Maximum equity drawdown determines the "tradability" of a commodity system, not profits.
System developers initially defined maximum equity drawdown as the worst amount of equity drawdown
(i. e., reduction of the equity in your account) on a close-to-close basis. Eventually, an intraday
maximum equity drawdown came to be used. This gave a more realistic worst-case scenario. I'd say
neither of these maximum equity drawdown figures is adequate.