Lingering Quandaries about System Development (Part 6)

My last post ended with a thud.  Today, I’m going to reframe the discussion in terms of robustness.

My entire reason for studying System Development is to identify valid systems:  systems that will make money in live trading.  As was the case in http://www.optionfanatic.com/2012/10/18/laziness-dissected, I have now discovered another hidden personal bias.  In addition to wanting a system that is valid, I have wanted a system that is robust.  I have believed a system cannot be valid without being robust.

Investopedia defines “robust” as:

> a characteristic describing a model’s, test’s or system’s ability to effectively perform
> while its variables or assumptions are altered. A robust concept can operate without
> failure under a variety of conditions… For statistics, a test is claimed as robust if it
> still provides insight to a problem despite having its assumptions altered or violated…
> In general, being robust means a system can handle variability and remain effective.”

I illustrated robustness in http://www.optionfanatic.com/2012/09/28/trading-system-1-spy-vix-part-1 with the graphs showing a high plateau region vs. a spike high.

If one of the variables to be altered is the ticker itself, then we have another definition of robustness commonly used by traders.  Many traders think a system is only valid if it is profitable across different markets.  Now I see this is personal bias, at best.  Whether a system needs to be effective on multiple markets is the unanswered question that concluded http://www.optionfanatic.com/2013/01/25/lingering-quandaries-about-system-development-part-5/.

Ultimately, System Development is about giving me the confidence required to consistently trade a system in real-time thereby giving me the opportunity to profit.  If I believe a system must work across markets then I will demand this in the development process.  If I believe a system may work on one market then successful development on just one market is all I need to see.