The stability of an automated trading system means its ability to adapt to market volatility and information surges. Any system showing profit, but not able to withstand sudden fundamental factors, is not recommended for use, because in the case of force majeure, in just a few transactions, it will merge not only annual earnings, but the entire deposit. Parameters of trading system stability:
- relative and maximum drawdown. A maximum drawdown value of more than 15% is considered to be the limit;
- the ratio of maximum and average loss to profit;
- the ability of the system to recover quickly after a drawdown (equity analysis);
- the percentage of profitable and unprofitable transactions. A large gap in favor of losing trades indicates the instability of the system, despite the fact that the loss is covered by high-yield positions.
Principles of a sustainable trading system
- The trading system should not be complicated. Bulky combinations of price models, filters – all this only complicates and destabilizes the system. The more indicators and confirming signals, the lower the statistical confidence, the less often the system opens the position and the greater the likelihood of losing trades. A system built on 1-2 indicators is another extreme. The optimal amount is considered to be a vehicle that works with 3-5 filters.
- A positive result from the first test. The trading idea based on the adviser should be profitable in the first testing period. This means that the revealed pattern is objective and can be sharpened further. Let the initial settings of the indicators be far from ideal, but the system is working. If at the very beginning the system fails and adjusting the parameters does not quickly solve the problem, then the vehicle is not viable, and further optimization will mean fitting the parameters.
- The duration of the test period is determined depending on the strategy. For scalping tactics, 5-7 days are enough, for intraday trading – 30-40 transactions.
- Effective settings should not be an accident. It is not enough to achieve system profitability in the test mode – you need to make sure that the results obtained are not an accident. The goal of strategy optimization is to find a wide area with high performance. This will be done by the tester built into MT4, which builds two-dimensional diagrams (set the “Two-Dimensional Surface” checkbox in the Optimization Graphic tab). The areas with the most resistance will be the most saturated.
- Real trading is different from testing. After running the advisor on a real account, control is needed so that real results do not deviate from the test ones. The average period of “life” of the vehicle without re-optimization is from 0.1 to 0.25 test period. In other words, due to a change in the market situation, a vehicle’s lifetime is 7-15 months when tested at a length of 5 years.
- The more diversified the vehicle is, the more stable it is. The system should show performance on multiple tools (multicurrency testing).
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