Here's why looking at how the returns deviate can help you design your own system.
Traders spend a lot of time worrying about the proper trading signals.
Then they think about stops, and sometimes they even worry abut exits. Hardly anyone, assessing his trading system, worries too much about its volatility. In most trading system evaluation software, volatility the variability of the returns it provides isn t covered at all. Even so, volatility does have some unexpected impact on a system s usefulness and therefore on your wealth at the end of the day. All things being equal, the system with the lower volatility will beat the system with higher volatility.