Chapter 22. System Design and Testing

Chapter Objectives

By the end of this chapter, you should be familiar with

• The importance of using a system for trading or investing

• The difference between a discretionary and a nondiscretionary system

• The mindset and discipline required to develop and trade with a system

• The basic procedures for designing a system

• The role that risk management plays in system design

• How to test a system

• Standard measures of system profitability and risk

Chapter Summary

Why Are Systems Necessary?

A system aids the investor in using well-controlled entries and exits, especially those that limit the amount of loss that can occur and that will react to changing conditions in the market. A discretionary system

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