It's important to construct a set of investment rules that generate signals in which you are confident. Imagine that you're using a system in live trading and the last five trades have been losers. Your trading capital is depleted and your confidence shaken. Are you going to make the next trade without question?

Consider the case of a huge drawdown during an open trade. Your profit has turned into a loss. Will you stay with the current rules or jump ship? Can you hold on for a vague promise of a profitable outcome in a few days or weeks? That's unlikely.

 

The Genetic System Search for Technical Analysis program is designed to produce a system of rules that will encourage you to stay with them. There are factors in the fitness formula that promote rules that avoid confidence-undermining trades.

Each candidate system is reduced in fitness according to the number of consecutive losing trades and the amount of the greatest drawdown during the simulation period. Systems exhibiting those characteristics will rank lower than an otherwise equivalent set of rules that don't include confidence-crumbling properties. The set of investment rules labeled the best of the population at the end of the run has minimized detrimental characteristics.