FADING THE LOSING SYSTEM
Another myth of system development is that the discovery of a losing system is a method of successful system development. This myth assumes that the fading of every losing trade would yield a profit. The main flaw in this thinking is that fading marginally unsuccessful systems produces another losing system once realistic commissions and slippage are deducted from results. The other, subtler flaw in this reasoning stems from the fact that we must be able to weather the worst peak-to-valley equity drawdowns inherent in fading the losing system. Doing so usually entails the introduction of a fail-safe stop loss, which, in some cases, will turn a marginally profitable system into an overall loser.
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