V.13:08 (348-351): Basic Techniques for Analyzing Systems by Mike DeAmicis-Roberts
What should you consider when you're designing or testing a trading system? Here are some hints that may help you.
Trading is all about fear and greed," a trader once said. He was right. Every trader has to deal with his or her own levels of fear and greed. Individuals have their own objectives for profit and tolerance for risk. Some traders want to achieve the greatest profit while ignoring risk, while others are looking for the smoothest equity curve. The system a trader develops should be aligned with the personal needs of the trader in question. Here are some techniques for analyzing systems so a trader can custom fit a particular system to specific investment needs, as well as some hazards of using a particular type of analysis. These techniques can also be helpful to the trader who is just beginning to develop a system.
First, and foremost, it is important to remember that there is no ultimate formula, no Holy Grail, when selecting or designing a system. But there are some basic steps to take before you consider the relative profitability of a system.