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.



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