Analysis of Outcome — Explained

Analysis of Outcome means evaluating results after the fact to understand what actually happened, why it happened, and whether the outcome was caused by skill, luck, or system behavior.

It is the bridge between execution and improvement.

Core Definition

Analysis of Outcome asks three questions:

1. What was the result?
   (Profit, loss, drawdown, variance, deviation from expectation)

2. Why did this result occur?
   (System rules, market conditions, probabilities, randomness)

3. What does this tell us about the system?
   (Edge, weakness, stability, required adjustments)

Importantly, it does not ask:

“Was this good or bad?”

It asks:

“Was this expected?”

Outcome - Decision Quality

A key principle:

• Good decision - good outcome

• Bad outcome - bad decision

A correct process can produce a loss.
An incorrect process can produce a win.

Outcome analysis separates:

• Process validity

• System performance

• Random variance

In Trading / Systems Thinking

Analysis of Outcome focuses on:

1. Expectation vs Reality

• Was the outcome within expected variance?

• Did results align with geometric growth assumptions?

• Was drawdown statistically normal?

2. System Behavior

• Did the system fail as designed?

• Did losses cluster as expected?

• Did edge disappear or merely pause?

3. Execution Fidelity

• Were rules followed 100%?

• Any deviation from sizing, entry, exit?

• Was psychology a factor?

Why It Matters

Without outcome analysis:

• You optimize noise

• You abandon working systems

• You overreact to variance

With outcome analysis:

• Losses become data

• Drawdowns become measurable

• Improvements become targeted

This ties directly to:

Feature > Failure

If the outcome reveals repeatable information, it is a feature of the system.

Simple Example

Bad analysis:
“I lost - the strategy is broken.”

Proper outcome analysis:
“I lost. This loss occurred under conditions X, Y, Z, which historically happen 18% of the time.”

Only the second leads to improvement.

Analysis of Outcome is the discipline of measuring results against expectation to distinguish system behavior from random variance.

This is how professionals think.