A trading system is a set of rules that define when to buy or sell a security. The purpose of a trading system is to take the emotion out of trading and help the trader make objective decisions. There are many different types of trading systems, but all systems have three common elements: entry rules, exit rules, and money management rules.
A trading system is said to be robust if it can perform well in a variety of market conditions. Robustness is an important consideration when choosing a trading system because no one knows what the future holds. By definition, the future is unpredictable. A robust trading system should be able to adapt to changing market conditions and still be profitable.
How do we know that a trading system is robust? Reference  offered a fresh perspective on system robustness,
And here is the amazing thing about robust systems: The more robust a system, the more volatile it tends to be! This is because robust systems are not optimized to particular markets or market conditions. The converse is also true. You can design systems with excellent returns and low volatility on historical testing, but which work only for given periods in given markets. These systems tend to be curve-fit or market-fit and are not robust.
I think the author has a point. However, we believe that there are a couple of issues with this point of view:
- How do we quantify the robustness, i.e. what objective function should we use?
- At the end of the day, the smoothness of the portfolio’s equity is still very important. This means that the PnL volatility of each individual strategy can be high, but that of the portfolio must be low.
Let us know what you think in the comments below or in the discussion forum.
 David Druz, Volatility, Robustness, & Long-term Performance of Futures Trading Systems, 2003
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