Hi,

I am currently designing some trading systems and am looking to understand how to compare the risk of the system to the index that it is traded on. I was using annual standard deviation and found the strategies to be a few percent below the standard deviation of the index I was trading it on, but have been reading that this is not an effective way of measuring risk. The systems are being tested on the NASDAQ 100 since 1985 and the S&P 500 since 1960 currently.

Could anyone here recommend books that explain how to compare the risk of different trading systems? I have been designing the systems using excel 2010 so I can use this to input formulas to compare the trading system vs. the index, but I don't know the best way to compare the risk. I appreciate both simple answers to the question so I can compare the risk right now and also book recommendations for understanding risk in the equity markets on a much deeper level.

Many thanks

I remember reading a bunch of stuff by Richard Dennis (turtle trader guy) about risk in trading so Id look for his stuff, I believe there is a section in New Market Wizards. Generally the idea though is that events dont occur on a normal distribution in the markets.