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<font color="#800080"><x-tab> </x-tab>When
you adopt a trading system that gives you entries and exits, your profit
on any individual trade is either positive or negative or zero. The
collection of these positive and negative and null results forms a
distribution. If the mean of this distribution is positive, the
system will on average gain you a profit; if it is negative, the system
will on average lose. A distribution with a positive mean
represents what is called a superfair bet; a distribution with a negative
mean represents a subfair bet. The only way to win consistently in any
gambling game is to make superfair bets consistently. The
theoretical distribution and its statistics are not available but can
only be estimated using back data. Any conclusions derived from
back data are subject to sampling error and this error must be
sufficiently small as not to invalidate the conclusions. <br>
<x-tab> </x-tab>The
standard deviation of the distribution is also important; among
other things, it tells you how consistent the system is. In
addition, the tails of the distribution contain information that is
valuable to the trader of the system. The trader improves the system by
reducing the weight in the left hand tail and increasing the weight in
right hand tail, and this is done by understanding the conditions that
accompany these tails. Such conditions are sometimes complex and
can only be unearthed with great difficulty. A trader improves only
by adjusting the tails as described. A successful trader is one who
has identified, either analytically or intuitively, market conditions
that generate superfair distributions and who regularly makes superfair
bets. <br>
<x-tab> </x-tab>Anyone
familiar with stochastic processes and gambling theory will recognize
immediately that this is the right way to look at trading systems.
I have developed a software package for my own use that derives these
distributions, displays them and their important pieces, uses pattern
recognition techniques and genetic algorithm technology to improve them,
etc. The package has a lot of value for the informed trader and I
would be interested in seeing the program marketed. I am a
statistician and a trader and not interested in marketing, but if anyone
out there has such an interest and also the capability, please contact
me. Please, no individual inquiries -- the development costs
have been quite large.</font><br>
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