What is System Evaluation?

System evaluation is the process of assessing the performance of a complete system to discover how it is likely to perform in live market conditions.

There are several steps to evaluation:

• Defining personal trading goals.
• Risk resonance.
• Parameter selection.
• Step testing.
• Calibration and final testing.

All of these steps form part of the trader’s method and are carried out routinely for any system rules he wishes to review. Systems traders spend a proportion of their trading time trying to improve their existing systems and looking for new and different ideas. This is interesting work when you have the essential tools to carry it out.

It is essential that any proposed system or change is fully evaluated before being used in live trading. This is one reason why the successful traders do not purchase system rules – how could they evaluate them beforehand to make sure they were capable of meeting their requirements?

This is not the problem it might appear to be because it is not difficult to create your own system rules. Furthermore, there are plenty of ideas around that can be adapted.
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System evaluation brings your complete system into play – not just the rules. This is essential because the rules are only a part of your system and arguably they are not the most important part. Your money management techniques are likely to have a much bigger influence on your final results than any other aspect of your system.

 

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