Trading Thoughts - Indicator and Strategy Evaluation

In an attempt to become more organized and more efficient, I have realized I need to determine a procedure for evaluating trading indicators and strategies.  The procedure should be a simple, repeatable, and robust process with clear milestones that determine whether further testing is warranted.

Unfortunately, there seem to be a countless number of ways to evaluate a trading system.  Thankfully, there is a whole niche of books devoted to trading system development and evaluation.  I have made a list of the books and will begin reading them this year with the goal of refining my personal system evaluation procedures and development processes.  I recently purchased "Systems Trading for Spread Betting: An End-To-End Guide for Developing Spread Betting Systems" by Gary Ford.  This seems like a good starter book because it walks through the fundamental steps of creating and evaluating a trading system.  Currently, I am not interested in spread betting, but I am always looking to learn something new.  The real bonus is that the author uses NinjaTrader for the system development and evaluation, which should significantly improve my platform skills.

I will eventually develop an entire post/plan for my evaluation procedures and add it to the side bar, but for now this is more of a kick-off post to highlight the various areas of system evaluation.  From what I have seen, below is a list of topics that my system evaluation procedure should address:

• Time frame analysis (ticks, minutes, hours, days, etc.)
• Day trading time analysis (what hours during the trading session)
• Contributions of each aspect of the indicator/strategy
• Entries and Exits
• Filters for volume and volatility
• Backtesting
• Risk management and position sizing
• Parameter optimization
• Walk Forward optimization
• Monte Carlo simulation
• Bootstrap analysis
• Stochastic process control theory analysis
• Simulated strategy trading
• Live trading

This is just an initial list of topics to be investigated.  Hopefully, once I have read a few books on the subject I will have the basic steps of my procedure in place and I can begin evaluating systems on this website.  My initial goal would be to evaluate at least one indicator/strategy a week.  The primary goal would be to familiarize myself with each procedural component to better understand its strengths and weaknesses.  Once that is accomplished, I can then focus on determining the true merits of a sample trading system.