There is a general discussion of trading system development, including design, testing, backtesting, optimization, and walk forward analysis. The importance of recognizing the non-stationary characteristics of financial data, and techniques for handling it, are discussed. CAR25 is as near a universal objective function as I have found. An original objective function, called “CAR25,” based on risk-normalized profit potential is developed and explained. The trade-by-trade risk experienced during trading. ![]() The risk added by the trading system rules. The risk inherent in the price fluctuations of the issue to be traded. The trader’s personal tolerance for risk. ![]() It begins with a discussion and quantification of the several aspects of risk. Howard Bandy, discusses an integrated approach to trading system development and trading management.
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