Analysis of the core principles and stability of the trading system

The trading system is the concentration of the thoughts and ideas of the system designer, and the materialized expression of his ideas. The guiding ideology of the design of the trading system is usually called the investment philosophy, which constitutes the soul and core of the system and expresses the designer's "world view" of understanding the market. The most basic quality of a trading system is to have a correct investment philosophy. If the investment philosophy of a trading system has logical defects or obvious hidden dangers, then the use of the system should be abandoned in time. The truth mentioned here is fundamentally different from the truth in nature. The truth expressed by the trading system is a kind of truth in the field of social science, which belongs to the category of a few people, and its essence is closer to game theory. In every market, if a certain investment method is widely used, then the trading system established based on this method is often subject to market penalties.

Having the right investment philosophy is a prerequisite for designing a trading system. Applying this philosophy to actual trading is a process of discovery and expression, that is, translating a "worldview" into a "methodology". In practice, there are various methods used, but one core principle must be followed - the principle of simplicity. Simplicity often means beauty. In nature, great truths are often surprisingly simple. In the market, simple truths are often the most applicable. Similarly, in the process of designing a trading system, the principle of simplicity should be structured. If we put too many restrictions in the development of trading strategies, it is likely to lead to too little signal in the system. This is not only unfavorable to the statistical requirements of the number of signals, but also prone to small probability events, resulting in a situation where points are used instead of faces and generalizations are made.

If a trading system loses the principle of simplicity, it may deliberately fit the historical data of the market. When this fitting is extrapolated, its performance is often inferior to that of random systems. Therefore, in the design of the system, we need to pay special attention to the simplicity of the rules. Investment activities are to some extent similar to war, and trading systems are the weapons of investors. Imagine that soldiers involved in combat use complex weapons, which is a very dangerous thing. In addition, from the perspective of systems engineering, complex systems are often fragile, prone to collapse, and difficult to survive in a changing environment for a long time.

The stability of a trading system, in layman's terms, refers to its stable viability and stable profitability. Its stability is mainly reflected in the following aspects:

1. The system can be adapted to a variety of market environments, such as the stock market,foreign exchange marketThe futures market, etc.

2. The system can be used in different national and regional markets.

3. The system can be applied to multiple varieties.

4. The system can be adapted to different historical periods.

5. The system can capture most of the original fluctuations.

Indicators to measure the stability of the trading system include: win rate, net profit, total loss, forced position squaring profit and loss, forced position squaring number, total number of transactions, average annual number of transactions, number of profitable transactions, number of losing transactions, single maximum profit, single maximum loss, average profit per profitable transaction, average loss per losing transaction, average holding time of profitable transactions, average holding time of losing transactions, average rate of return per transaction, maximum floating loss, average net return per transaction, etc. Among these indicators, win rate and average rate of return per transaction are particularly critical. If the designed trading system has an irregular probability distribution of returns in actual operation, then the system is unstable. If it is used to guide the actual operation, it is easy to lead to ups and downs in performance, which is obviously not what professional investors expect.

The pursuit of long-term sustainable and stable profits is an important criterion for measuring the professionalism of investors. Currently inGTCForex, as well as the so-called trading systems popular on various platforms, can sometimes be taken out of context, substituting local significance for overall generality and exaggerating investment performance. However, once it is used in practice, it often quickly exposes potential risks.