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This is an issue I've been struggling with for quite a while, and haven't found a satisfactory answer yet. The basic problem is this:

Lets say you set up a black box system which gives you anywhere from 5-25 opportunities per day. Now lets say you observe x "paper" transactions, and you hit your target on y% of occasions.

Given the above:

  1. How many observations should you make at minimum before using the system?
  2. What is the best way to confirm that the edge is more than luck? (i.e. statistical vs. practical significance)
  3. How will you know if you lose your edge over time versus what might be ordinary draw down or otherwise randomness?
  4. How does this relate to maximizing growth using the Kelly Criterion?
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A short paper that might help. evidencebasedta.com/montedoc12.15.06.pdf –  brian May 24 '14 at 21:22

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