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After you're satisfied you've developed a satisfactory method for mining the behaviour, you can do an edge test to see if it happens beyond random. If not, use Monte Carlo sims to determine confidence levels for trading the method. Determine at what confidence level you'll stop trading. Examine the drawdown versus the profit. Is it worth risking any money on this? If so, allocate money using a money management scheme Creating our system - Coding our rules Some details regarding creating our trading rules.
There are three parts to our trade: When we develop an automated trading system we look for an edge. An edge is a statistical estimation that our trade will be profitable over trades. It is the same as how a casino operates in blackjack. A casino works on an edge basis and know that over hands of blackjack they have the probability of winning in their favour - this is a mathematical and statistical absolute.
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