Implementing the trading system over a variety of market conditions and studying the resulting performance will enable the E-mini® S&P 500® futures trader to identify strengths and weakness of the system and take steps to improve performance. For example, the trader may determine that the system works best when using 5-minute time intervals (for a bar chart) instead of 15-minute or 30-minute. It may also be that the system performs best only during certain times of the day, for example, during the first and last two hours of the regular trading day. How the day trading system performs during the volatility that typically accompanies the release of important financial or economic news can also be determined. Finally, based on the relative size and frequency of gain versus loss, the trader can determine how much money to risk on any given trade to reduce the probability of ruin.

An analysis of the trading system's performance over time can provide clues on how to modify and improve the system by looking for systemic (consistent) problems that jeopardize performance. For example, say that a trading system often tends to close a profitable trade too soon. This suggests that the condition for closing a profitable trade needs to be more accommodating. If closing a profitable trade with a trailing stop order, then the stop order can be trailed farther behind to accommodate more of a price reaction before a profitable trade is closed. Also, if trading more than one contract, then the trader may consider closing only a portion of the position on the initial signal with the intent of closing the rest at a later and better price.

As another example, say that the trading system generates a high number of trades that once established get quickly stopped out. However, subsequent to this, the market then moves favorably. In other words, the system correctly anticipated the market move but the trade was closed on a brief market reaction. The solution here may simply be that the protective stop order needs to be more accommodating, that is, set father away from the entry price to accommodate more of a market reaction and, consequently, risk more on the trade.

After any modification, the Emini trading system should then be implemented for a sufficient length of time to collect valuable feedback on the modification. If performance is superior, then the changes are maintained. If not, then the trader can return to the older system and perhaps try another modification. Alternatively, the trader can create several "second-generation" systems, each one distinguished by a particular modification. These trading systems can then be implemented simultaneously and, after a period of time, the trader simply selects the one that performs best.

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