Category Archives for System Development

Multiplex For Greater Profit

Two problems that often result from system optimization are:  (1) a reduction in the number of trades, a system that generates too few trades can both be more difficult to trade and a low number of trades does not inspire confidence; and… (2) there is a selectivity or specialization risk that, by sheer bad luck, the specific […]

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Are Breakeven Stops Worth The Effort?

One favorite “gotta have” of many traders is a breakeven stop. By not letting a winning trade become a loser, the psychological lure of breakeven stops is strong. This is especially true for discretionary traders, where the winning percentage can play an important mental (not necessarily financial) role.The answer for automated traders may be different, […]

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The Power Of One, Two, Three!

An example of combining different classes of assets improves returns and reduces riskMany people begin their trading endeavor by trading a single system. This is a great stepping stone to becoming a successful trader, but you can’t rely on a single system. Why? Trading systems naturally ebb and flow much like the market. Sometimes they […]

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9 Mistakes Quants Make that Cause Backtests to Lie

“I’ve never seen a bad backtest” — Dimitris Melas, head of research at MSCI. A backtest is a simulation of a trading strategy used to evaluate how effective the strategy might have been if it were traded historically. Backtestesting is used by hedge funds and other researchers to test strategies before real capital is applied. Backtests […]

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Statistical Analysis For Exits

As system designers, we hit the problem that whilst it seems relatively straightforward to develop entries and then test them against arbitrary exits, the reverse is a lot trickier. I have found out that doing some very simple statistical analysis can help in exit rule development. Over the years it has appeared to me that […]

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Beginner’s Guide to Quantitative Trading

Quantitative trading

In this article I’m going to introduce you to some of the basic concepts which accompany an end-to-end quantitative trading system. This post will hopefully serve two audiences. The first will be individuals trying to obtain a job at a fund as a quantitative trader. The second will be individuals who wish to try and set […]

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Case study: Can a simple Market Internals technique actually improve trading strategy results?

In my 10+ years’ full-time trading career, I have found very few tools and tactics that would get my attention so deeply as Market Internals. In 2014, I spent about six months in a row with this unique traders tool, exploring its possibilities every single day, searching for new and creative implementation ideas for my own […]

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Are you losing when you should be winning? Here’s something you might be missing

Most people think about where to get into and out of positions. Nearly all traders know how important it is to follow their rules, and the majority of them always work toward being more disciplined. These are important pieces of a successful investment strategy, and most traders work on these things. But there’s one thing […]

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Broken Strategy or Market Change: Investigating Underperformance

Broken Strategy

I recently had someone email me about the performance of a strategy I created back in late 2005/early 2006 and traded for a few years. I remember the strategy being a daily mean reversion set up with an intraday pullback entry. I figured it probably had not done well over the last decade. I stopped […]

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Trading The Equity Curve & Beyond

Some trading systems have prolonged periods of winning or losing trades. Long winning streaks followed by a prolonged period of drawdown.  Wouldn’t it be nice if you could minimize those long drawdown periods? Here is one tip that might help you do that. Try applying a simple moving average to your trading system’s equity curve. Then, […]

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