But I’m finding it difficult to distinguish strategy from system. Some vague idea what I’m getting from Wikipedia entry http://en.wikipedia.org/wiki/Trading_strategy is that a strategy involves calculating risk-reward ratio, determining a time-frame to follow, volatility conditions etc.
So is strategy part of the trading system?
It would be great if anyone of you experts could formally distinguish between these terms viz. System,Strategy,Method.
The difference between strategy and system is that in general use of the terms, trading strategy may include some discretionary (subjective) elements in decision making where as in a trading system there is no subjective rules.
The engine of the car is like the trading strategy. Supporting this high performance engine is the aero dynamic structure of the car. The car in itself (including the engine) is like the trading system. So when I say each car has a different engine..its very similar to saying that each trading system has a different strategy.
Supporting this formula 1 car you have various data - weight of the car, Horse Power, Torque, highest speed, fuel consumption, burn rate for the rubber etc. Data such as these are the car's (read trading system) performance parameters.
Likewise for a trading system we have various parameters to analyze - Average return, Draw down, volatility, sharpe ratio, risk reward etc. These parameters are nothing but the performance parameters for a trading system.
You can generate the performance parameter by doing something called as 'Back testing'.