Good systems scale
In most cases, the only way to evaluate trading indicators or systems is
through diligent and rigorous testing. However, there are cases in which
indicators, systems or even entire approaches can be rejected on principle. A
good way to root out the unworkable indicators, systems or approaches is to
apply a c-test, which is a methodological test for dimensional coherency. A
system can be said to be dimensionally coherent if its results do not change
even though the units of measure do. The test is applied directly to the
formulas or rules that define a system or indicator. If the system or indicator
fails the c-test, then it will give incoherent results that cannot be trusted;
however, a formula determined to be incoherent can often be modified to pass
the c-test.
William Eckhardt
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