Evaluation of the trading results

You have gone through all the steps in the systematic trading process and finally, have your systems trading live. It is time to open up a beer and head to the beach… Well… not quite yet. Before you get there you should perform a trading results evaluation and make sure that your trading systems are behaving as expected.

Topics overview:

  • Live trading results evaluation
    • Learn how to evaluate live the live trading results of your trading systems

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Live trading results evaluation

A crucial part of the systematic trading process is the evaluation of the results of your real trades. Depending on the frequency of trading and the average holding period of your trading systems you should go through their results on a weekly or monthly basis.

It is important to find a balance in this evaluation process. You don’t want to be too obsessed and check them after every single trade. Let them run for some time and put up a few trades instead. This sounds easy, but in reality, you will be more focused on the trades than you think. Especially in trading systems that don’t trade too frequently. The reason is that when you look at the equity curve in the back-test of your system, it looks like there is a constant dynamic. What you don’t realize is that actually the distance between two points in the equity curve might be several days.

So you’ve done everything right and the first results start to come. There are two outcomes which you will be facing at that moment:

Your trading systems are making a profit

Congratulations! You are lucky to see quick results from your efforts. Pat yourself on the shoulder, but it is too early to celebrate. The biggest mistake you can make at this time is to take this initial success for granted. You still need to see if the systems are behaving as expected or there is some unexpected reason, luckily in your favor, for the gain.

Your trading systems are not making a profit

Relax! Don’t panic! It happens quite frequently that you enable a trading system while it is in a period of stagnation or draw-down. In any case, you will have to let it run and see how will it perform compared to it’s expected statistics. This is why it is recommended to run any new system with a lower level of risk until you have a live trading confirmation of its statistics.