I n this book is the knowledge needed to become a mc~re successful trader of com-
modities. As a comprehensive reference and system developer’s guide, the book
explains many popular techniques and puts them to the test, and explores innova-
tive ways to take profits out of the market and to gain an extra edge. As well, the
book provides better methods for controlling risk, and gives insight into which
methods perform poorly and could devastate capital. Even the basics are covered:
information on how to acquire and screen data, how to properly back-test systems
using trading simulators, how to safely perform optimization, how to estimate and
compensate for curve-fitting, and even how to assess the results using inferential
statistics. This book demonstrates why the surest way to success in trading is
through use of a good, mechanized trading system.
For all but a few traders, system trading yields mm-e profitable results than
discretionary trading. Discretionary trading involves subjective decisions that fre-
quently become emotional and lead to losses. Affect, uncertainty, greed, and fear
easily displace reason and knowledge as the driving forces behind the trades.
Moreover, it is hard to test and verify a discretionary trading model. System-
based trading, in contrast, is objective. Emotions are out of the picture. Through
programmed logic and assumptions, mechanized systems express the trader’s
reason and knowledge. Best of all, such systems are easily tested: Bad systems
can be rejected or modified, and good cntes can be improved. This book contains
solid information that can be of great help when designing, building, and testing
a profitable mechanical trading system. While the emphasis is on an in-depth,
critical analysis of the various factors purported to contribute to winning systems,
the essential elements of a complete, mechanical trading system are also dissected
and explained.
To be complete, all mechanical trading systems must have an entry method
and an exit method. The entry method must detect opportunities to enter the mar-
ket at points that are likely to yield trades with a good risk-to-reward ratio. The
exit method must protect against excessive loss of capital when a trade goes wrong
or when the market turns, as well as effectively capture profits when the market
moves favorably. A considerable amount of space is devoted to the systematic
back-testing and evaluation of exit systems, methods, and strategies. Even the
trader who already has a trading strategy or system that provides acceptable exits
is likely to discover something that can be used to improve the system, increase
profits, and reduce risk exposure.
Also included in these pages are trading simulations on entire pqrtfolios of
tradables.
