Profitable Trading System
Below is a MRR and PLR article in category Finance -> subcategory Stock Market.
Profitable Trading System: Ensuring Future Success
Summary:
Once you've developed a profitable trading system and completed back-testing, how can you ensure it will continue to deliver results in the future?
Keywords: trading systems, stock market, trading, profitable, backtest
Article
After crafting and back-testing a profitable trading system, the question arises: Will it maintain its performance in the future? Predicting the stock market is inherently uncertain. Your system might encounter losses or become non-viable. To enhance confidence in your system’s future success, conduct the following tests to assess its robustness.
Test 1: Ensure Liquidity
First, confirm that your entry and exit prices are feasible by incorporating liquidity rules. This ensures that trades are possible under real market conditions.
Test 2: Re-evaluate Your System
Revisit your trading system and rules critically. Many systems that initially seem promising may prove impractical in real-world situations. Check for reliance on one stock with significant gains, as its exclusion could impact profitability.
Test 3: Vary the Start Date
Simulate your system by altering the start date two or three times. A consistently strong performance across different periods suggests robustness.
Test 4: Adjust Parameters
Modify some parameters or variables within your trading system, changing one at a time, followed by back-testing. If the system remains resilient, it passes this test.
Test 5: Restrict Stock Purchases
Try limiting the system from purchasing 20% or more of the stocks used in the initial back-test and rerun the simulation. The system should deliver similar results to pass this test.
Test 6: Analyze Equity Chart
Examine the equity chart and statistical values like the Sharpe Ratio, Sortino Ratio, standard deviation, maximum drawdown, and average recovery days. Prioritize systems with higher Sharpe and Sortino ratios and lower standard deviation and maximum drawdown. Pay special attention to the average recovery days; a high value means longer waits to recoup losses, which might lead traders to abandon the system prematurely?"often just before it performs well.
These rigorous tests may lead to rejecting many trading systems. However, given the involvement of real money, it's crucial to be selective to maximize your chance of success.
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By implementing these strategies, you can significantly improve the likelihood that your trading system will continue to be profitable in the future, even in the face of market uncertainties.
You can find the original non-AI version of this article here: Profitable Trading System.
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