Otherwise you're almost guaranteed a loss. I have various techniques that I use but it can be defined with something as simple as the average range for the past three to four days. Again, the key is to make sure your stops are outside of that level. I think more important than how much you risk is how much you can lose above and beyond that risk. At least once a year, some extraordinary event will create a price shock and you'll lose at least twice what you thought your max loss per trade was.
System testing is great, or least it appears that way on the surface.
People forget that these are just stats, historical estimates if you will, but they accept them as if they were fact. They fail to realize that they are only historical estimates. Controlling risk is much more important than the system itself. What missing is the hidden features or phenomena of a historically based system. One phenomena that doesn't show up in the stats is that longer you trade the system the bigger the largest losing trade will be as well as the maximum drawdown.