Modus Trading
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Modus Trading

System Evaluation

"No system should be used
until it has been thoroughly evaluated."

What does the word thoroughly mean - is there a point beyond ordinary evaluation where thorough evaluation occurs?

Thoroughly just means the evaluation has covered all the essential aspects it needs to. The system will have been given the fullest opportunity to demonstrate its character.

So, for a start it needs to be tested over a sufficiently long period of time to allow all the different market price circumstances to occur e.g. uptrends, downtrends, choppy and flat markets, sudden price movements etc.

Most traders select a time period somewhere between 5 and 10 years.

Then, the number and type of commodities traded should represent the list the trader intends to use. They will have been selected as being suitable from a liquidity and volatility viewpoint, for example.

Following these actions, the trader's evaluation method should have been carried out completely, starting with determining the risk resonance of the system.

Then comes parameter selection, trades examination etc. up to completion and assessing its suitability.

Finally, is the system capable of achieving the trader's % return and risk level goals? Does it fulfill his other requirements?

That in a nutshell, explains the extent of thorough evaluation.

Any system which has not been thoroughly evaluated is an unknown quantity. No systems trader would be comfortable delegating such a system to his computer.


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Copyright David Bromley 2006
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