Mechanical Trading Systems: Pairing Trader Psychology with Technical Analysis (Wiley Trading) [Hardcover]

Richard L. Weissman (Author)

Book Description

ISBN-10: 0471654353 | ISBN-13: 978-0471654353 | Publication Date: December 3, 2004 | Edition: 1

A wide variety of flexible trading systems that combine sophisticated technical analysis with trading psychology theory
Mechanical Trading Systems examines the development process for choosing and using mechanical trading systems in conjunction with trader psychology. This book discusses the advantages and disadvantages of mechanical trading systems; the dangers in system development and how to avoid them; the optimal methods for back-testing trading systems; position sizing and other risk quantification tools; and methods of improving rates of return on investments without significantly increasing risk. Most importantly, through a detailed examination of various types of unsuccessful trader personality traits (e.g., fearfulness, greed, and impatience), the book recommends different types of trading systems for a diverse array of trader types.
Richard L. Weissman (Port Richey, FL) has seventeen years' experience as a trader and developer of trading systems. He currently provides independent consultation an d training services to traders and risk management professionals in the areas of technical analysis, risk management, and trader psychology.

Editorial Reviews

Review

"The book is highly recommended for almost anyone involved in trading, forecasting, or studying the markets." (Technical Analyst, July/August 2005)

From the Inside Flap

When mechanical trading systems were first introduced into the arsenal of trading tools, the trader interested in utilizing these tools would have needed programming expertise, a strong background in mathematical technical analysis, and iron-willed discipline. Today, trading system software developed by market-data vendors has become so user-friendly, that nonprogrammers with only a rudimentary understanding of mathematical technical analysis can successfully create and backtest simple trading systems like those offered throughout this book.

In Mechanical Trading Systems, Richard Weissman uses his experiences as a trader and trading systems expert to take this concept to a new level. Filled with in-depth insight and practical advice, this book examines the development process for choosing and using mechanical trading techniques in conjunction with trader psychology. Mechanical Trading Systems skillfully explores the dangers in system development and how to avoid them; how backtesting and forward testing of trading systems aids in quantification of price risk; and the methods of improving rates of return on investments without significantly increasing risk. It also provides a detailed examination of the personality traits common to the three basic types of trader—trend-following (long to intermediate term), mean reversion (intermediate-term), and short-term (swing and day traders)—and illustrates how a strict adherence to specific types of trading systems can foster a psychological flexibility that will allow you to succeed in all kinds of trading environments: countertrending, choppy, or trending.

Some of the other issues discussed within these pages include:

• Why mathematical technical analysis is anideal building block in the development of mechanical trading systems
• How various flaws in trader psychology—fearfulness, impatience, greed, and lack of discipline—can be overcome
• The pros and cons of various traditional price risk management methods, such as stop loss and volumetric price risk management
• The psychological aspects of price risk management and how utilization of mechanical trading systems can aid in fostering confidence during drawdowns
• How your knowledge and experience can be utilized within the framework of a mechanical trading system

Mechanical Trading Systems offers a wide variety of flexible trading systems that combine sophisticated technical analysis with trading psychology theory. If you plan on improving your trading skills, this comprehensive resource can help you succeed.

See all Editorial Reviews

Product Details

• Hardcover: 217 pages
• Publisher: Wiley; 1 edition (December 3, 2004)
• Language: English
• ISBN-10: 0471654353
• ISBN-13: 978-0471654353
• Product Dimensions: 9.3 x 6.5 x 1 inches
• Shipping Weight: 1 pounds
• Average Customer Review: 4.0 out of 5 stars  See all reviews (17 customer reviews)
• Amazon Best Sellers Rank: #790,828 in Books (See Top 100 in Books)

More About the Author

Richard L. Weissman is a professional trader with over twenty years experience and has provided private consultations and training to traders and risk managers for over fifteen years. He currently serves as a Senior Associate with the Energy Management Institute (www.emi.org), where he teaches trading and risk courses which are co-sponsored by the CME Group and the Intercontinental Exchange. In addition, he is editor-in-chief of Weissman Signals Inc. (www.weissmansignals.com) a newsletter covering the ETF, Futures and cash Foreign Exchange markets. Weissman's first book, Mechanical Trading Systems: Pairing Trader Psychology with Technical Analysis was published by John Wiley & Sons in 2004. His second book, Trade Like a Casino: Find Your Edge, Manage Risk and Win Like the House was released in 2011.

Customer Reviews

Most Helpful Customer Reviews

51 of 55 people found the following review helpful:

5.0 out of 5 stars Psychology + Methods = a winning combination!, February 5, 2007

By 

Dr (Jackson Heights, NY, United States) - See all my reviews
(VINE VOICE)    (REAL NAME)   

This review is from: Mechanical Trading Systems: Pairing Trader Psychology with Technical Analysis (Wiley Trading) (Hardcover)

The book is written in a clear, direct language - the author speaks to you, not at you. While leafing through a pile of trading books, I was stopped it in my tracks when I opened this volume. I got out my yellow highlighter and read attentively from cover to cover, taking notes. The author's unique approach was to combine traders' psychology with different types of trading; this book showed me something new about myself and other traders.

Weissman begins by explaining why "...natural and comfortable trading, using entry levels as reference points, ensures small profits and large losses. We need to reprogram ourselves to be comfortable with the unknowable and uncertain future. It helps to remind ourselves that the entry level is significant to us alone and that the sense of discomfort we feel as the market moves into previously unknown territory is entirely subjective and illusory."

Weissman outlines the three basic trader personality types: trend-following, mean-reversion [counter-trend], and day-trading. You need to be comfortable with yourself to trade well. You need the right system for your trading personality - and the author offers a rich menu for every type of trader. The author's practical, shrewd observations hold up a psychological mirror for traders. He points out that with trend-trading, just a few trades account for the bulk of profits, which means you cannot take time off from mechanical trend trading. Mean-reversion traders capitalize on temporarily unsustainable levels of euphoria or panic; they need an especially strong discipline not to overstay positions. Day-trading is labor-intensive, demands quick-mindedness and frequent vacations to avoid burnout.

The author shows how to test trend-following and mean-reversion (counter-trend) systems, as well as day-trading systems. He deals in depth with the benefits and pitfalls of system development and price risk management.

"Successful trading entails fighting natural inclinations toward comfort, security, impatience, perfection, fear, and greed. We can never control the markets, only how much risk we will assume in them." Weissman stresses the importance of keeping a trading journal. He confirms something that very few people appreciate - that at a very high end systematic and discretionary trading have a great deal in common.

Weissman's gentle but persistent insistence on both knowing yourself and stepping out of your comfort zone can have unusual results. In my case, it led me to develop a semi-mechanical system for day-trading e-minis!

39 of 45 people found the following review helpful:

5.0 out of 5 stars Teaching you how to BUILD systems - Refreshing!, March 9, 2005

By 

P. G. N. "Trader" - See all my reviews

This review is from: Mechanical Trading Systems: Pairing Trader Psychology with Technical Analysis (Wiley Trading) (Hardcover)

If you are looking for a get rich quick scheme where you get ready made systems that will turn your measly $2K into $500K in a year, keep searching.
How refreshing that this author has avoided the temptation to sell tons of books by promising that mechanical trading systems presented in a book will accomplish this ridiculous claim!
Instead this book teaches you how to build mechanical trading systems. Not only does it provide readers with tools that are applicable to all systems (trending, mean reverting, etc.,), but it also shows you how to build these systems according to your individual trading personality.
Finally it avoids the typical trader "war stories". Instead of colorful, useless stories of the crash in 1987, this book actually sticks to the point... teaching you how to develop systems that fit your personality.

11 of 14 people found the following review helpful:

2.0 out of 5 stars not so great, October 5, 2009

By 

linus 71 - See all my reviews

Amazon Verified Purchase

This review is from: Mechanical Trading Systems: Pairing Trader Psychology with Technical Analysis (Wiley Trading) (Hardcover)

Only now I got the idea of buying some books about automated trading.
My problem was the programming language. I did my backtesting with Excel and EFS (eSignal) and sometimes with MetaStock which is pretty much like Excel in my opinion.
Programming language doesn't really matter. If you want to write codes and backtest them you have to run a trading software first. Your trading software dictates your programming language. Then you're browsing the support forums for help on that language, and for help on finding profitable strategies as well.
Reading other peoples' questions and answers gave me a lot of new ideas for new strategies or for modifying existing ones. I have about two dozens strategies in my folder to modify to my needs and liking and then to backtest them.

So this book didn't come up with anything new to me. The strategies presented here are very basic and simple and almost all of them are based on technical indicators NOT on price action (except for one little code which should give the reader/trader a start for better ideas). Also there aren't really much ideas at all here. This book is small. The main premise of this book is to give the reader basic ideas to build upon, e.g. the author encourages the reader to test other exit conditions. This is why I think it's for beginners.
This book is good in telling you which type of strategy would suit you best when you're a long term investor or a short term trader.

I'd like to give this book three stars really because the author's take on psychology is actually really good.
But then the last chapters on system development, analysis and optimization are boring and too general. All in all this book is much too general. And I think those 5 Star reviews are mostly overrating.
Better read books by Perry Kaufman or Thomas Stridsman if you are serious about writing codes or have already some coding experience.
I also advise you to browse your software's help and support forums.

Sorry Mr Weissman.