Category Archives for System Development

Risk-Based Position Sizing

Let’s start with a thought experiment. Let’s say we have two traders who are each given identical trading systems to execute on the SPDR S&P 500 ETF (SPY).  Because both systems are identical copies of an automated trading system, both trading systems generate the same buy/sell signals, use identical stop loss and trailing stop parameters.  These two […]

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Improving The Moving Average Crossover System

Let’s take a look at a simple moving average crossover system and see if we can improve it. Specifically, can we improve the moving average system’s performance by reducing the number of whipsaws during those dreaded range bound markets? Whipsaws occur when a market moves from a trending mode to a consolidation mode. During this […]

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Hedging a $500k Portfolio With Optimal Puts

Hedging a $500k Portfolio With Optimal Puts

A reader recently emailed me, asking how he could hedge a “typical $500k mutual fund portfolio”. I’m going to walk through a step-by-step example of doing that in this post.Step One: Choose A Proxy Exchange-Traded FundIf you own a portfolio of stocks or stock funds, you can hedge that portfolio against market risk by buying […]

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Intro To Algo Trading

Algo Trading

In Part 1 of this series, I discussed the different types of trading which includes algorithmic, discretionary, and hybrid trading. Let’s say you are intrigued by algorithmic trading. What is it exactly and what are the advantages and disadvantages of it? I will discuss all these topics in this article.What is An “Algo?”Anytime you trade, […]

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Step One In Building An Intraday Trading System

If you have been reading System Trader Success for a while you’re probably familiar with how I develop trading systems. The very first step is to come up with a simple idea to act as the seed or core of your trading system. I call this your key concept. This key concept is a simple observation […]

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The Different Types of Trading

“Algos” and “algorithms.” These two words strike fear into the hearts of many a trader. Visions of computer programs running wild, buying and selling with reckless abandon, are a common nightmare. A trader goes to sleep flat, and wakes up to find a rogue robot algorithm frittered away his or her account, buying and selling […]

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Improving The Moving Average Crossover System

Let’s take a look at a simple moving average crossover system and see if we can improve it. Specifically, can we improve the moving average system’s performance by reducing the number of whipsaws during those dreaded range bound markets? Whipsaws occur when a market moves from a trending mode to a consolidation mode. During this consolidation […]

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Two Dimensional Market Environment Filter

In this article I’m going to demonstrate a technique to help adapt your trading systems to the changing market conditions. In a previous article entitled, “Trend Testing Indicators“, I tested several indicators that could be used to divide the market into two modes: bullish and bearish. These two modes were then used to dictate how […]

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Market Phase – Going Beyond The Death Cross

There are many ways to use indicators to help determine when the market is within a bull or bear mode. A common method that works well on trending markets over the long-term has been the so-called death cross and golden cross (Death/Golden Cross) indicator. This topic was discussed in a former article called, The Death Cross – What You Need […]

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Building A Better Trend Filter

In this article I will create a trend filter (also known as market mode filter or regime filter) that is adaptable to volatility and utilizes some of the basic principles of hysteresis to reduce false signals (whipsaws). As you may know, I often will use the 200-period simple moving average (200-SMA) to determine when a […]

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