Design, Testing, and Optimization of Trading Systems [Hardcover]

Robert Pardo (Author)

Editorial Reviews

Product Description

A practical, hands-on guide to setting up, adjusting, and trading mechanical systems that requires no computer or programming skills! Here’s everything you’ll need to develop and verify each stage of a profitable trading strategy, from formulation through testing to real-time trading. Armed with the author’s battery of easily accomplished testing and optimization techniques — many never before published — you’ll design a workable trading strategy, reliably measure its profit potential and risk, and then test it to see if it works in real-time trading. No matter what your level of trading expertise, now you can swiftly isolate and eliminate the causes of trading failure and make the decisions essential to profitable computerized trading. You’ll discover:

• The seven major components of mechanical trading strategies and their uses
• When and how to use fast, accurate, and realistic computer simulations to evaluate a strategy’s trading performance without risking precious capital
• The best ways to tailor a trading strategy to fit the unique personalities of widely different markets
• What to expect from a trading model in real-time trading
• How to judge trading performance with respect to historical testing performance

Design, Testing, and Optimization of Trading Systems helps you develop, evaluate, and apply a winning computer trading system that suits your specific needs.

From the Publisher

Provides easily understood, hands-on guidance for futures and options traders who are not computer literate. Using an approach that can be followed by whichever method of technical analysis readers prefer, it quickly and efficiently demonstrates exactly how to set up and adjust a successful trading model for a wide range of trading techniques and products, market considerations and risk profiles.

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Product Details

• Hardcover: 176 pages
• Publisher: Wiley; 1 edition (August 12, 1992)
• Language: English
• ISBN-10: 0471554464
• ISBN-13: 978-0471554462
• Product Dimensions: 9.1 x 6.2 x 0.8 inches
• Shipping Weight: 13.6 ounces
• Average Customer Review: 4.4 out of 5 stars  See all reviews (10 customer reviews)
• Amazon Bestsellers Rank: #316,359 in Books (See Top 100 in Books)

  #95 in

  Books > Business & Investing > Investing > Futures

Customer Reviews

Most Helpful Customer Reviews

45 of 49 people found the following review helpful:

5.0 out of 5 stars Best Introductory Technical Analysis Book, August 19, 2001

By	"empire-builder" (Minneapolis, MN) - See all my reviews

This review is from: Design, Testing, and Optimization of Trading Systems (Hardcover)

This book contains everything you need to know to understand the theory of computerized trading systems. It goes through the process of choosing a strategy, implementing it in algorithm form, perfecting variables, and optimization. The most important parts, in my opinion, are those regarding tests of statistical significance of the test results. The author is also careful to caution against any "over-optimization," which is the bane of any trading system.

Incedentally, I manage the technical analysis arm of a newsletter that attempts to forecast the best performing Fidelity Select mutual fund. This book was an asset during the implementation of my trading system. I would choose it before "The Mathematics of Technical Analysis," by Clifford Sherry, for example.

The trading system paradigm detailed in this book is based on technical analysis; the use of mathematical tools to estimate the future performance of a security. Technical analysis is, of course, at odds with the strict versions of the efficient market theory. Do you believe that stock performance is deterministic, that future price changes can be inferred from past ones? If so, this is the book to use to implement your computerized trading system.

19 of 19 people found the following review helpful:

5.0 out of 5 stars Excellent how-to on applying simple statistical analysis, December 17, 2003

By	Dennis Chang (Seal Beach, CA United States) - See all my reviews (REAL NAME)

This review is from: Design, Testing, and Optimization of Trading Systems (Hardcover)

A great instructional book on the application of statistical analysis to trading systems. It's excellent for novice trading system developers who don't yet understand the importance of rigorous testing or discretionary traders who aren't yet aware of their need for a carefully and thoroughly tested trading system--a real eye-opener. While the text is somewhat repetitive and the references to software are extremely dated, the techniques within are timeless and are boiled down so that non-mathematicians can easy understand and apply them. This book helps you bypass the slow process of learning system development by trial-and-error and gives you a clear step-by-step breakdown of how to ensure that your trading system is sound and "robust." However, for those of you looking for trading system recipes/indicators/source code, you won't find it here. Coming up with ideas for a trading system and setting them up is entirely up to you--this book only describes the process of forging an existing trading system into a robust system that can be used successfully in real-time trading. A must-read for any serious trading system developer!

10 of 12 people found the following review helpful:

4.0 out of 5 stars A good introduction to trading system development, February 3, 2007

By	Rob Ryley "Robert" (Northeast NJ) - See all my reviews (VINE VOICE)

This review is from: Design, Testing, and Optimization of Trading Systems (Hardcover)

Let me state my biases up front. I've always been rather suspicious of so-called "mechanical" trading strategies, although I'm a strong supporter of a technical approach to the market.

Technical analysis, for me, has always been about individual market participants, as a group, are likely to respond to price action to further their interest for profits, or to conserve capital. Market players are not mindless robots who are as predictable as coin flips, but people pursuing goals, and who learn from history. How the market reacts to news and fundamental info is extremely important from this point of view.

While there are things that can be learned from looking at price action, any algorithm that can extract profits from markets is likely to be short lived. With the advent of cheap, powerful computers, it is all too easy to "test" a system on historical data, only to have it fail in real time. Proper system testing is difficult to do.

Even if testing is done properly, it is likely to have been found by a significant number of smart, well-capitalized people long before you or I ever came onto the scene, making historical test results misleading, possibly unprofitable.

The fact is, markets change, and the context of price action in the past may be totally different to the current market environment. How do market systems account for market change, while still producing valid results?

This book allayed some of my fears. Since system testing IS hard to do, it is unlikely that a significant percentage of people will discover the signals of a profitable system, making the method unprofitable.

Even a skeptic such as myself will admit that proper historical testing can, at the very least, encourage thought about future market conditions, and prepare for various scenarios.

Most important (to me), system testing provides a reasonable method for adapting to changing markets. As new data comes in, the model can, and should, change.

This book teaches you how to do proper system testing, so you can have confidence in your results.

I deduct 1 star from the emphasis on the use of a frequentist statistical methodology. It is becoming clear in economics that talk of "long run frequencies" makes little sense for historical events that occur in a particular place, or a particular time, and are not likely to be repeated.

The use of Bayesian methods based on a subjective interpretation of probability (ie. degrees of belief), are growing in usage, and can provide more appropriate answers to certain questions that the "frequentist" methods do not.

For experienced technicians, I can recommend it.