What is indicated by System Robustness?

System Robustness refers to the stability of a trading system's results when its parameters are varied. This concept is crucial in technical analysis and trading system development, as it indicates how resilient a trading strategy is to changes in the underlying assumptions used in backtesting.

When a trading system demonstrates robustness, it suggests that the system can yield consistent performance across different market conditions and data sets, regardless of minor modifications to the input parameters. This stability is essential for traders who want to ensure that their strategies are not overly optimized for specific scenarios (a problem often referred to as "overfitting"). A robust system can adapt more effectively to changes in the market, thereby enhancing its reliability and credibility.

Understanding robustness helps traders distinguish between strategies that may work only under specific circumstances versus those that have a proven track record across a wider range of market conditions. While success during backtesting, consistent profitability, and responsiveness to market trends are important factors for evaluating a trading system, the stability of results when parameters are adjusted is the core definition of system robustness.