Evaluating Robustness of A Trading System

How long will our trading strategy exist until there is a massive drawdown that takes it out of the market. If we can answer that one we have fooled the trading gods and are on our way to fabulous wealth.

There are many methods of verifying robustness, we can apply some stress tests and we can vary some inputs for comparisons, we can also apply the strategy to more than one instrument at a time.

We can use Monte Carlo methods to great advantage by randomizing a few different inputs.

The main item that we have to know is that our trading strategy when first developed can look great and when it first starts to trade and then it can deteriorate rapidly as the market shows something different. Hence the need for several methods of testing.

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