Trading system capability

Click to increase image sizeClick to decrease image size

Notes

¹This definition is generally that of stationarity, rather than stability, but in the NIST definition it is commonly used in the engineering disciplines.

²The breakeven point is the level of revenue from a trading system that equals total fixed costs so that accounting profit equals zero. Fixed costs relate to R&D and infrastructure costs allocated to each trading period.

³For simplicity, we will use daily time periods. In practice, this would depend on the holding period for each trade. Some trading systems hold positions for milliseconds, so much shorter periods could be selected.

⁴Including holidays, the actual number of trading days per year is around 252. However, to simplify we will assume five trading days per week times 52 weeks is 260 trading days per year.

⁵Other signals with similar probability exist. See Nelson (1984) and Bilson et al. (2010).

⁶HFRX^® and Hedge Fund Research™ are registered trademarks of Hedge Fund Research, Inc.