How long will our trading strategyexist until there is a massive drawdown that takes it out of themarket. If we can answer that one we have fooled the trading gods andare on our way to fabulous wealth.
There are many methods of verifyingrobustness, we can apply some stress tests and we can vary someinputs for comparisons, we can also apply the strategy to more thanone instrument at a time.
We can use Monte Carlo methods to greatadvantage by randomizing a few different inputs.
The main item that we have to know isthat our trading strategy when first developed can look great andwhen it first starts to trade and then it can deteriorate rapidly asthe market shows something different. Hence the need for severalmethods of testing.
