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Trading Systems: A New Approach to System Optimisation and Portfolio Construction
Harriman House Publishing, August 2009, Pages: 196
Trading Systems: A new approach to system optimisation and portfolio construction by Emilio Tomasini, Urban Jaekle
Every day the sun rises on the horizon there are some traders who make a fortune. It seldom happens but it does happen, as the names of William Eckhardt, Ed Seykota, Jim Simons, and many others remind us. And you can be one of them.
Trading Systems is an insight into what a trader should know and do in order to achieve success in the markets. You don't need to be a rocket scientist to build a winning trading system.
Divided into three parts, this book highlights exactly how you can build that system. Part One is a short practical guide to trading systems’ development and evaluation, forming the theoretical basis for Part Two. It condenses the authors’ years of experiences in a number of practical tips.
A step-by-step development process covering everything from the initial code writing up to walk forward analysis and money management makes up Part Two: a combination of Emilio Tomasini's experience and Urban Jaekle's practical application of trading systems and evaluation.
Part Three shows you how to put systems for all different markets together in the most effective way.
A trader can never say he achieved success but only that he survived: the black swan is always around the corner. Trading Systems will help you find your way among the unchartered waters of systematic trading and show you what it takes to be the one that survives.
PART 1: A PRACTICAL GUIDE TO TRADING SYSTEM DEVELOPMENT AND EVALUATION
Chapter 1: What is a trading system?
1.1 Why you need a trading system
1.2 The science of trading systems
Chapter 2: Design, Test, Optimization and Evaluation of a trading system
2.3 The forecasting power of a trading system
2.4 Evaluation of a Trading System
PART 2: TRADING SYSTEM DEVELOPMENT AND EVALUATION ON A REAL CASE
Chapter 3: How to develop a trading system step by step - on the example of the British Pound /US-Dollar pair
3.1 The birth of a trading system
3.2 First evaluation of the trading system
3.3 Optimisation and stability graphs
3.4. Inserting an intraday time filter
3.5. Determination of appropriate exits
3.6. Summary: Step by step development of a trading system
Chapter 4: Two methods for evaluating the system’s predictive power
4.1 Time scale analysis
4.2. Monte Carlo Analysis
Chapter 5: The factors around your system
5.1 The market's long/short bias
5.2 Out-of-sample deterioration
5.3 The market data bias: Your chosen training data matters!
5.4 Optimization and over-fitting
5.5 Rule complexity explained with Polynomial Curve Fitting
Chapter 6: Periodic Re-Optimization and Walk Forward Analysis
6.1 Short repetition: “Normal”, static optimization
6.2 Anchored vs. Rolling Walk-Forward Analysis (WFA)
6.3 Rolling WFA on the LUXOR system
6.4 The meaning of sample size and market structure
Chapter 7: Position sizing on the example of the LUXOR system
7.1 Definitions: Money Management vs. Risk Management
7.2 Application of different MM schemes
7.3 Monte Carlo Analysis of the position sized system
PART 3: SYSTEMATIC PORTFOLIO TRADING
Chapter 8: Dynamic Portfolio Construction
8.1 Introduction to Portfolio Construction
8.2 Correlation among Equity Lines
8.3 A dynamic approach: Equity Line Crossover
8.4 Dynamic portfolio composition: the Walk Forward Analysis Activator
8.5 Largest Losing Trade/ Largest Losing Streak/ Largest Drawdown
APPENDIX: Systems and ideas
1. Bollinger Band System
2. The Triangle System
3. Portfolios with the LUXOR system
Emilio Tomasini is a proprietary trader for many European banks and hedge funds and Adjunct Professor of Corporate Finance at the University of Bologna, Italy.
Urban Jaekle provides trading systems' advisory services to a hedge fund with automated trading systems on futures. He holds a diploma in physics, is a regular speaker in the main European trading events, and contributes to TRADERS' and Active Trader magazine.