System Validation

Abstract

This chapter describes the validation approach used to evaluate the defined system, in particular the employment of the Backtesting [1] test strategy. This process consists on testing a specific strategy on a prior time period in order to determine its effectiveness. For instance, suppose an evaluation of our strategy, in terms of its year performance, is required. Instead of waiting one whole year to do it, the past data can be extracted and, subsequently, the procedure evaluated on the considered periods. Applying the developed strategy to prior data can be substantially benefic, in order to detect strategy flaws and improve its potential.