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Building Reliable Trading Systems: Tradable Strategies That Perform As They Backtest and Meet Your Risk-Reward Goals (Wiley Trading) [Kindle Edition]

Keith Fitschen
4.3 out of 5 stars  See all reviews (25 customer reviews)

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Book Description

An award winning system developer explains how to create, test, and implement a profitable trading system

Traders have long been drawn to the idea of translating their strategies and ideas into trading systems. While successful trading systems have been developed, in most cases, they work very well for a period of time in specific markets, but perform less well across all markets in all time frames. Nobody understands this better than author Keith Fitschen—a thought-leader in trading system development—and now, with Trading Strategy Generation + Website, he shares his extensive experience in this field with you.

Trading Strategy Generation skillfully explains how to take market insights or trading ideas and develop them into a robust trading system. In it, Fitschen describes the critical steps a trader needs to follow, including: translating the market insight into a rules-based approach; determining entry and exit points; testing against historical data; and integrating money management and position sizing into the system.

  • Written by an award winning system developer who has actively traded his systems for thirty years
  • Introduces new ideas on money management and position sizing for different markets
  • Details exactly what it takes to build, test, and implement a profitable technical trading system
  • A companion Website contains supplementary material, including Excel spreadsheets designed to rate the strength of entry signals and provide money management guidance based on market volatility and portfolio correlations

Written with the serious trader in mind, Trading Strategy Generation is an accessible guide to building a system that will generate realistic returns over time.



Editorial Reviews

From the Inside Flap

A tradable strategy is one that fits your own risk-reward goals and trades as well in real time as it performs in a development backtest. While it's not easy to create a tradable strategy, due to pitfalls ranging from excessive curve-fitting to greed, if done the right way, you can achieve a realistic level of success.

Nobody understands this better than author Keith Fitschen—a thought leader in trading system development whose most popular system, Aberration, has been named "One of the Top Ten Trading Systems of All Time" by Futures Truth. For more than twenty-five years, Fitschen has developed and actively traded his proven systems, and now he shares his extensive experience in this field with you.

Engaging and accessible, Building Reliable Trading Systems opens with a practical look at exactly what is achievable with a trading strategy. This includes documented performance from some of the best money managers in the world over the last five years, metrics that best characterize a trading strategy's performance, and a set of questions to help you define what would constitute a "tradable strategy" according to your personal risk-taking tolerance. It also addresses one of the biggest problems in developing a strategy—curve-fitting—and presents a unique methodology known as "Build, Rebuild, and Compare," or BRAC, that can be used to determine the degree of curve-fitting in your strategy development.

With this information in hand, Fitschen moves on to outline two tradable systems: one a short-term scalping system for stocks, and the other a mid-term trend-following strategy for commodities. Entries, exits, and trading filters are discussed as these systems are developed. By the end of the process, both are "tradable" as is, but in order to tailor them to a range of risk-reward profiles—from large stock and commodity accounts to small—you'll be introduced to some essential money management techniques. Fitschen also develops a money management overlay to trade the stock and commodity strategies together, which can yield a trading solution that is better than either alone.

And for those who want even more detail about the strategies developed in this book, the trades for both systems can be found on www.keithstrading.com. At the website, you can input your user name and password to find the TradeStation Easy Language code and daily signals for them.

Written with the serious trader in mind, Building Reliable Trading Systems contains information that you'll be hard-pressed to find elsewhere—from BRAC to bar-scoring—and will put you in a better position to generate realistic trading returns over time.

From the Back Cover

Traders have long been drawn to the idea of developing a reliable trading system. But before you embark on this journey, you must first have a realistic understanding of what a "tradable strategy" must encompass.

For more than twenty-five years, author Keith Fitschen—whose most popular system, Aberration, has been named "One of the Top Ten Trading Systems of All Time" by Futures Truth—has continuously developed and actively traded his proven systems. Now, he shares his extensive experience in this field with you.

Building Reliable Trading Systems skillfully describes the critical steps a trader needs to follow to excel in today's dynamic markets. Along the way, Fitschen touches on exactly what it takes to build, test, and implement a profitable technical trading system. You'll become familiar with everything from the dangers of curve-fitting to the importance of knowing your personal risk tolerance. You'll also gain valuable insights on entries, exits, and trading filters; money management techniques for both large and small stock and commodity accounts; as well as advice on avoiding the influence of some misguided trading lore.

Written with the serious trader in mind, Building Reliable Trading Systems is an accessible guide to creating a system that will generate realistic returns over time.


Product Details

  • File Size: 5055 KB
  • Print Length: 304 pages
  • Publisher: Wiley; 1 edition (May 9, 2013)
  • Sold by: Amazon Digital Services, Inc.
  • Language: English
  • ASIN: B00CQK4A12
  • Text-to-Speech: Enabled
  • X-Ray:
  • Word Wise: Not Enabled
  • Lending: Enabled
  • Amazon Best Sellers Rank: #561,446 Paid in Kindle Store (See Top 100 Paid in Kindle Store)
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Customer Reviews

Most Helpful Customer Reviews
127 of 145 people found the following review helpful
Format:Hardcover|Verified Purchase
In a few words -- worse than wrong.

Chapter 1

He gives examples of the returns and drawdowns of several money management organizations.

Chapter 2

His discussion of the standard error (sic) of samples of trades drawn from an in-sample backtest. Here we realize that he is treating the entire history of all stocks and commodity futures as if they have identical characteristics and are stationary for their entire lifetime.

It is also the description of the BRAC methodology he recommends:
Build, Rebuild, Compare.

Beginning of methodology

Build -- Using all available price history -- 20 years or more -- optimize the rules and parameters of the system. The objective function is maximum profit.
Rebuild -- Using all but the most recent year of price history, repeat the optimization of the rules and parameters.
Compare -- Compare the "best" system parameters between the two optimizations. Also compare the profit per trade between the two runs.

From page 20: "If performance is similar, you can have pretty good confidence that your strategy will hold up in real trading."

End of methodology.

You understand correctly. If the optimized results from years 1975 through 2013 are about the same as those from years 1975 through 2012, you can have "pretty good confidence."

All 37 commodities are treated as having identical characteristics. Profit per unit contract is treated as equivalent regardless of being wheat, platinum, TBond, S&P.

The system optimization schedule is in three steps, performed in sequence:
1. Determine the optimum parameter for the entry and exit rules -- say moving average lengths (he illustrates using a moving average crossover system).
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11 of 12 people found the following review helpful
By H. Eck
Format:Hardcover
Much of the "statistical" material is just plain wrong, in particular the method for overcoming data-snooping, which the author refers to as "curve-fitting".
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4 of 4 people found the following review helpful
Format:Kindle Edition
A friend of mine loaned me this book. He said that if I want the book, he would be happy to give it to me with no strings attached. At first, even though I did not ask him at the time, I was wondering why anyone would offer to give away a trading book written by a famous trading system designer. Now I know why he was so willing to part with this book. To sum up this work by the author in a simple phrase, it's truly a case of a blind leading a blind. I was hoping to find a few nuggets. Unfortunately, there were none. Typically, I do not write negative reviews on trading books on the assumption that even the hastily written trading books contain an idea or two to provide the reader with some food for thought. But this book failed miserably. Also, check out the previous trading system works by the author to see how they turned out in the end for FYI. IMHO, the author is just another trading system vendor with very limited knowledge to be of any help to anyone including himself. Well, maybe except his pocket and bank accounts lined up with enormous profits made by selling useless trading systems. Personally, I would like to rate this book with 0 star for this book is completely worthless.
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5 of 6 people found the following review helpful
1.0 out of 5 stars It's bad but really very bad November 23, 2014
Format:Hardcover
I expected many more of this book than it gave me.
It's bad but really very bad.
I do trading for some years and It's first time I read so wrong ideas.
So bad that I could have not finished this "book".
I will give only two serious examples why I claim this books is bad.
Page 136, the author gives an enter and exit strategy about trading divergences. He gives some results and concludes that for stocks, divergences are not a appreciable way to trade stocks. Worst, Page 137, he explains that for commodities, you must do the reverse to win.
But who stupid trader open a trade with a simple divergence on indicator ? And in a general way, who open a trade by relying on only one single signal ?
Seemingly, the author doesn't know the basis of TA : mixing multiple signals and clues in our setup in order to increase the success rate of a trade.
Chocking...
The part the most funny is his conclusions about stop loss order : it increases only marginally our results. Is it a joke ?

The whole books is like this. Some trading ideas and concepts are introduced with no one link between each other. And from that, the author does statistics and concludes.
How but how can we simplify so much a concept so complex like TA ?
Believe me : spare your money and avoid this "book".
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23 of 33 people found the following review helpful
5.0 out of 5 stars Professional Trades May 13, 2013
Format:Hardcover
This is a book for professional traders. It details a process for building a trading system that performs in real time like it does in development. For traders who want to trade, not just develop, the book also contains a complete stock system and commodity system along with money management strategies to trade those systems for small and large accounts. That material alone would get the book a 5-star rating from me, but it's the material I've never seen anywhere else that will have the "tinkerers" playing with their computers for years.

Material in the book that I've never seen elsewhere includes:
Small account money management techniques versus large account techniques
Start-trade drawdown metric
Bar Scoring concept
Entry power determination
An hypotheis on what curve-fitting is and how it can be minimized
The BRAC test to determine the degree of curve-fitting in the developed strategy
Use of the gain-to-pain ratio in system devlopment
Proof that markets trade differently, and a test to determine the way a class of assets will trade

Along the way Fitschen structures analyses to investigate:
Market trendiness
"The exit is more important than the entry"
Buying stocks that are about to split or pay dividends
Fibonacci retracements
Gaps
Divergence
The best money management technique for determining entry size
The tendency of some FX pairs to trend while otherwise are primarially counter-trend instruments (this was an eye-opener)
The results of many of these analyses totally surprised me.
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Most Recent Customer Reviews
4.0 out of 5 stars Trading Systems in the Real World.
Good trading book on system development and actual trading system execution. This book focuses on entries, exits, and the path of least resistance. Read more
Published 3 months ago by Steve Burns
5.0 out of 5 stars Five Stars
Excellent
Published 8 months ago by Amazon Customer
5.0 out of 5 stars Details key concepts to consistently improve your trading results
This is the most insightful book I have read on trading for some time, and it should be required reading to anyone wishing to improve their trading results. Read more
Published 12 months ago by EMT
5.0 out of 5 stars thorough trading education
First of all I must give a Little warning: This is not an easy read.
But if you are ok with that point, you really need this book in your Trading book arsenal. Read more
Published 14 months ago by Hans-Henrik Nielsen
5.0 out of 5 stars One of the top trading systems book
J have read 50/60 books on trading systems and I rate Mr.Fitschen's book as the number one or two in the list, The reason is that I studied and tested several trading systems,... Read more
Published 15 months ago by Linoborz
5.0 out of 5 stars A veteran trader with valuable insights
One of the few excellent trading books. Very few trading books give me the feeling the author is a veteran trader with valuable insights into the process. Read more
Published 15 months ago by Eric
4.0 out of 5 stars nicely written book with a lot of good information
This is a well thought out book that goes through the many steps in developing mechanical systems for trading equities and commodities, and discusses the reasons for each step and... Read more
Published 17 months ago by oscarthegrouch
5.0 out of 5 stars Well written methodical approach to building strategies
This is a great book. Fitschen stresses the use of an organized methodical approach to testing each component of a strategy with a money management metric in order to pick the... Read more
Published 18 months ago by Eric M Johnson
5.0 out of 5 stars perfect
100% common sense and 100% empirical tests to check all market myths. The BRAC procedure to develop trading systems with no overfitting is the best I have seen. Read more
Published 18 months ago by O. G. Cagigas
5.0 out of 5 stars Phenomenal Book!
I have been developing swing and intraday trading systems for 15 years. I have read many books on trading systems and trading strategies, and expected to see another similar book. Read more
Published 19 months ago by Quenton
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