It was this quote from tech/a that really seemed to highlight the belief that mechanical systems somehow present a trading plan, or methodology that based on statistics and mathematics, offered what is commonly referred to as the edge
We see that within this definition, discretionary trading has been portrayed as trading without a consistent plan, viz. trading on emotion.Discretionary trading at best is Maverick style.
There is much talk about plans and I often see plans that are like jelly ---constantly changing.
Sound plans have statistics on entry exit,stops and position size variables so that when trading you KNOW wether what you are doing is within your results---reslts that determine profitability if you trade a particular plan.
Contrasted with the mechanical advantage, or statistically tested methodology that results that determine profitability if you trade a particular plan.
Therefore it would really behoove anyone who is contemplating trading a mechanical methodology to closely examine some or all of the assumptions that underlie the NUMBERS
To give us a benchmark, and a point of comparable standards, I shall utilize Medical Research gold standards as the benchmark.
In medical research statistical modeling is used extensively in the research of new drugs, diagnostic criteria, treatment methodologies and everything inbetween.
Several reasons, and all related to the assessment of methodological quality.
1...It utilizes human beings, who though possessed of the same, or similar anatomy & physiology, have very different outcomes due to many variables
2...Medical research is required to be predictive.
3...Medical research must be predictive for the majority, within clearly defined confidence parametres and examination of causation to be accepted (Correlation, regression, and causation)
4...The statistical techniques utilized are in many instances the same as utilized in these backtested mechanical methodologies
5...Shoddy research can be hazardous to your health, or wealth in trading terms.
6...The increasing use of Surrogate endpoints
7...Paired data, tails, and outliers