Thoughts, Trading

Basic Factors in Evaluating a Trading System


  • Win rate
  • Average winner / Average loser
  • Profit factor (gross winnings / gross losses)
  • Number of consecutive losers (needs to match with your psychological ability to handle)
  • Expectancy (i.e. P/L of an average trade)
  • Maximum drawdown
  • Annual return
  • t-statistic > 2


  • Markets: The system should be tested across all market environments, e.g. bull, bear, choppy, etc. Performance should preferably be consistent across all environments.
  • Outliers: Is a significant chunk of the performance attributable to a just few trades or a particular market? or is the P/L across trades fairly consistent?
  • Costs: Slippage and commission deducted?
  • Logic: Are all signals immediately executable? e.g. limit moves might not allow execution

System Details

  • How many rules and variables are there in the system? Beware of over-optimization.



One thought on “Basic Factors in Evaluating a Trading System

  1. How do you develop a back-testing system for your strategies?

    Posted by dsn | March 14, 2018, 8:14 am

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Copyright © 2005 – 2018 All Rights Reserved.

Enter your email address to follow this blog and receive notifications of new posts by email.


Blog Stats

  • 712,128 hits
%d bloggers like this: