A fairly good book, that does a excellent job at explaining the pitfalls of system building. While not agreeing completely with the authors on all points, most of their arguments are in line with best practice when it comes to back testing and system building. On the downside, I probably expected more code than what existed in the book, without it, the examples become something of a 'trust-me' trade. Overall, a book that serves most system developer as a reminder that there are a number of ways to improve their own back testing protocols. More importantly, it does also make a good job at explaining the various charts and analytics that are available in Rina Systems and Trade Station.
Author(s): Emilio Tomasini, Urban Jaekle
Publisher: Harriman House
Year: 2009
Language: English
Pages: 258
Contents......Page 4
Acknowledgments......Page 11
Preface......Page 12
Part I: A Practical Guide to Trading System Development and Evaluation......Page 14
What is a trading system?......Page 16
1.1 An easy example of a trading system......Page 17
1.3 The science of trading systems......Page 20
1.2 Why you need a trading system......Page 18
2.1 Design......Page 22
2.2 Test......Page 25
2.3 The forecasting power of a trading system......Page 32
2.4 Evaluation of a trading system......Page 40
2.5 Conclusion......Page 46
Part II: Trading System Development and Evaluation of a Real Case......Page 48
Introduction......Page 50
3.1 The birth of a trading system......Page 51
3.2 First evaluation of the trading system......Page 56
3.3 Variation of the input parameters: optimisation and stability diagrams......Page 62
3.4 Inserting an intraday time filter......Page 72
3.5 Determination of appropriate exits – risk management......Page 77
3.6 Summary: Step-by-step development of a trading system......Page 99
Two methods for evaluating the system’s predictive power......Page 102
4.1 Timescale analysis......Page 103
4.2 Monte Carlo analysis......Page 114
The factors around your system......Page 124
5.1 The market’s long/short bias......Page 125
5.2 Out-of-sample deterioration......Page 128
5.3 The market data bias......Page 135
5.4 Optimisation and over-fitting......Page 139
5.5 Rule complexity explained with polynomial curve fitting......Page 149
6.1 Short repetition: “normal”, static optimisation......Page 160
6.2 Anchored vs. rolling walk forward analysis (WFA)......Page 162
6.3 Rolling WFA on the LUXOR system......Page 163
6.4 The meaning of sample size and market structure......Page 168
7.1 Definitions: money management vs. risk management......Page 172
7.2 Application of different MM schemes......Page 174
7.3 Monte Carlo analysis of the position sized system......Page 186
7.4 Conclusion......Page 188
Part III: Systematic Portfolio Trading......Page 190
8.1 Introduction to portfolio construction......Page 192
8.2 Correlation among equity lines......Page 199
8.3 A dynamic approach: equity line crossover......Page 201
8.4 Dynamic portfolio composition: the walk forward analysis activator......Page 203
8.5 Largest losing trade/largest losing streak/largest drawdown......Page 205
Conclusion......Page 206
Appendices Systems and ideas......Page 212
Appendix 1: Bollinger Band system......Page 214
Appendix 2: The triangle system......Page 222
Appendix 3: Portfolios with the LUXOR trading system......Page 234
Bibliography......Page 248
Index......Page 250
