Evaluate generated systems on holdouts, then add stops

Search invents a procedure

A mechanical trading system is a complete, repeatable set of entry, exit, and stay-out rules run as one procedure on historical bars. A mechanical procedure can be searched from a catalog of 23 indicators and 9 order types rather than from an unconstrained rule language.

Search objectives can be reduced to a small weighted set that raises profitability, trade count, and equity-path correlation while lowering rule complexity. Those build-metrics steer the hunt. They do not replace a later score on bars the hunt never used.

Partition the series first

Before the search starts, the price series can be partitioned into a construction sample and a reserved sample, and the reserved block can sit at either end of the series. The construction sample is the in-sample period used to search for or fit the rules. The reserved sample is the out-of-sample period. It is not used to invent the rules and is scored after the search is frozen.

Candidate procedures can be scored on both the construction sample and the reserved sample with the same metric list, including trade count, drawdown, correlation, and significance.

Judge the frozen package on withheld bars

Walk-forward analysis is a validation pattern that judges a frozen procedure on bars withheld from construction, then on later unseen bars. In the historical workflow, candidates were scored on the reserved sample after the search was frozen.

One demonstration used five-minute bars, a fixed session window, symmetric long and short logic, and a mandatory flatten at the session close. The demonstration entries compared two directional-movement readings of different lengths, and the timed exit fired after a fixed number of bars in the position.

After the historical search window ended, later unseen bars were used as a forward check, and a fixed-dollar stop of 500 was attached only in that later phase.

Add a stop after the hunt

A stop-loss is a precommitted exit that bounds loss or exposure before or during a position. In the demonstration, that bound was a fixed-dollar stop of 500, attached only after the historical search window ended.

A separate sample procedure expressed a trailing exit as a 3 percent retreat from the highest close over a 15-bar lookback. A trailing-stop follows a recent extreme and exits when price retreats by a set fraction or distance.