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the system will be a straightforward process since only the interfaces and algorithm con-
trol (SPC and risk management) system will be left to complete. These methods and soft-
ware components that implement them are well defined and documented in the finance
industry.
Key points to recognize regarding Stage 2:
● Stage 2 is the make or break spiral. Either the math works or it does not.
● K|V ’ s required deliverables for Gate 2 keep the team on track. To change the math
the team will have to go back to Stage 1 and again through Gate 1.
● Data makes or breaks a trading/investment system. Selecting, cleaning, and filtering
out bad data is the key stage in the development cycle and will be important for risk
management in Stage 4 as well.
● Performance of the system at the end of this stage will be the performance of the
working system.
● Design of experiments is very useful in tuning the algorithms. It was designed to
allow scientists to tune multifactor machine processes. Optimization utilizes stan-
dard math such as principal component analysis and genetic algorithms that tend to
overfit the data.13.7. SUMMARY