Thorough system analysis lays the groundwork for profitable trading, but there’s more to the process than producing rigorous “walk-forward” test results. Even after optimizations and out-of-sample tests are complete, it is still too early to begin trading a system with real money. Several questions need to be answered, including: What is the chance of ruin (blowing out a trading account) by trading the system? How likely is a certain percentage drawdown?

“From cliché to strategy” (Active Trader, December 2009) outlined a gold futures trading system based on market truisms such as cutting losses short and letting profits run.

This month we’ll use the trade results to dig deeper into the system and see under what conditions it is tradable with real money.