SYSTEM DEVELOPMENT (AGAIN)

There are many aspects on trading which must be adressed before trading a system. Some of them can be found in the sidebar under Interesting Posts. The following will be treated on a next occasion.

• consistency


• robustness


• traders psychology and behaviour

As allways I am looking for new tradesytems besides retesting the current in use. You never know what the results will be of these exercises. One of the most compelling aspects of trading is the valuation of the drawdowns of a system. A drawdown defined as the maximum top-to-valley drop in the equity curve.

Drawdowns can be seen as extreme events in a ditribution of possibble events but due to their extreme values they are almost allways underestimated in statistics, especially in normal distributions.

A relatively new research field of statistics considers extreme values. This so called Extreme Value Theory not only studies the markets but has also applications to other fields as floodcontrol, sea waves and material exhaution models and so on.

The mathematics is as usual interesting but really very complicated. I will try to give a survey of my findings another time. Some articles:

• Drawdown of A Brownian Motion


• Maximum Drawdown annd Risk Measure


• The Pros and Cons of “Drawdown” as a Statistical Measure of Risk for Investments

The last couples of day I performed some trades, see my FDAX Trades and my DOW JONES Trades.

SYSTEMTRADING

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