“An important key to investing is to remember that stocks are not lottery tickets.”
This chapter introduces the idea of treating a trading system as a model which produces a set of trades. As a group, the trades produced by a system have a lot in common. They were each initiated by the same entry signal, and closed with the same exit signal. Yet each trade has its own specific characteristics, such as how long it was open, and how much profit or loss it achieved.
A portfolio is also a set of trades, and it may well be the same group of trades as those produced by the model, but, more likely, it will be a subset of this group. This is because a trading system ...