Benjamin Joseph S Jackson

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What is stress testing in trading systems?

Stress testing simulates extreme market conditions, such as flash crashes, sudden gaps, or liquidity shortages, to see how strategies perform. It helps traders anticipate vulnerabilities and adjust risk accordingly. For example, testing how a system handles 200-pip gaps ensures preparedness for unexpected shocks. Stress testing complements backtesting by addressing rare but realistic risks. It improves robustness and resilience of trading systems.