How to increase the stability of the trading system
The stability of an automated trading system means its ability to adapt to market volatility and information surges. Any system that shows profit, but is not able to withstand sudden fundamental factors, is not recommended for use, since in the event of force majeure, in just a few transactions, it will merge not only the annual earnings, but the entire deposit. Trading system stability parameters:
- relative and maximum drawdown. The maximum drawdown value of more than 15% is considered the limit;
- the ratio of the maximum and average loss to profit;
- the ability of the system to quickly recover from a drawdown (equity analysis);
- percentage of profitable and unprofitable trades. 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 doesn’t have to be complicated… Cumbersome combinations of price models, filters – all this only complicates and destabilizes the system. The more indicators and confirming signals, the lower the statistical reliability, the less often the system opens a position and the greater the likelihood of losing trades. A system based on 1-2 indicators is the other extreme. The optimal amount is considered to be a vehicle that works with 3-5 filters.
- Positive result from the first test… The trading idea at the heart of the EA should be profitable in the very first testing period. This means that the revealed pattern is objective and can be refined 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 adjusting the parameters.
- The duration of the test period is determined depending on the strategy. For scalping tactics, 5-7 days are enough, for intraday ones – 30-40 trades.
- Effective settings should not be random… It is not enough to achieve the profitability of the system in a test mode – you need to make sure that the results obtained are not accidental. The goal of strategy optimization is to find a broad area of high performance. The tester built into MT4, which builds two-dimensional diagrams, will help to do this (set the “Two-dimensional surface” checkbox in the “Optimization graph” tab). Areas with the greatest resistance will be the most saturated.
- Real trading is different from testing… After launching the advisor on a real account, it is necessary to control so that the real results do not deviate from the test ones. The average period of the “life” of the vehicle without over-optimization is from 0.1 to 0.25 test period. In other words, due to changes in the market situation, the lifetime of the TS is 7-15 months when tested over a length of 5 years.
- The more diversified the vehicle, the more stable it is… The system should show performance on several instruments (multicurrency testing).
Still have questions? Ask, we will answer you as soon as possible!