The way to begin is to decide what kind of system you, personally -- very personally -- want. Define the characteristics of that system. How many trades a year (minimum or maximum), what is the minimum percentage of trades that should be winners, what is the minimum win to loss ratio, what is the maximum percentage system drawdown, and so forth. Combine everything that is important into one objective function. That objective function has a single value. Every trading system over every ticker over every time period can be evaluated using this objective function with the result that every alternative has a single number associated with it -- the objective function score.
Hi Howard,
Excellent discussion in progress, many thanks for your contributions to date. I have one further question relating to the allocation of the "objective function score". All of the system parameters used in evaluating a system must have a certain weighting towards the calculation of this objective function score. The weighting of each parameter would be dependent on the preferences of the trader.
Given that these parameters all present their values in different magnitudes (some in %, some in Dollar Values, some with really large numbers, some really small numbers etc etc), do you have any suggestion on how all of these system variables can be "normalised" (for one of better word) so that the final objective score is not overly skewed one way or another ? Presumably, you would also require various weights to be allocated to the different parameters as well, which could result in a lengthy mathematical formula used to calculate a SINGLE value which you would use as a basis for comparing systems with. Do you have suggestions as to the formulas other may be using for calculating the score ??