How to understand that the system is no longer working
Understanding that the system no longer works is very important for the trader. What if the account experiences a protracted decline? The system has stopped working, and it 's time to shoot it? Or is the drawdown period about to end? Many traders, especially newcomers, have absolutely no action plan for such a case.
Many experienced traders will say that they plan to wait for a period of time, and if the system does not start to leave the drain, then it is already decided that it no longer works. Another popular approach is to wait for the double slump shown on the tests. But how correct are both of these approaches? Are they supported by statistics? How much time does it take to wait? Why a double drawdown, not, say, a triple? There are no statistics on this, just so it is common to do.
And yet, how do you understand that the system is broken? With old, not statistically tested ways, or still worth a little thought? Let 's try the second option for variety.
And we 'll start thinking about what it is when the system stops working. Well, that means she doesn 't work anymore, doesn 't work the way she was laid in. All we need is to compare whether the system works the same way as tests.
But what parameter to compare? We have considered quite a few characteristics, but to assess the performance of the system it is worth highlighting one of the most important - the distribution of our transactions on the real account in comparison with this distribution on the test. All you need to check is whether a sample of real trade deals is part of a sample of tests. If you can refute the hypothesis that this is the case with a certain level of credibility (usually 95%), then your system no longer trades as intended. So it 's broken and you can safely withdraw it from your account.
Using this criterion is a very powerful tool. After all, you rely on science such as statistics in this case. And she 's the trader 's best friend. And you don 't have to wait another 1.5 months wondering if the system will come out of the drawdown. You don 't have to wait for two test runs, losing money. Simple calculations in Excel (which we did in just 10 minutes in one of the lessons of the ExcelTrader course) - and you already have a clear, statistically confirmed, scientifically sound decision on whether to withdraw the system from the account.