Quantitative Trading Systems: Practical Methods for Design, Testing, and Validation

367 Pages·2007·7.21 MB·English

by  Howard B. Bandy

Improve your trading profitability!

“Too often, trading systems that looked good last year, in an advertisement, oF
during computer back-testing, lose money as soon as you start trading them.
This book explains why that happens, and gives detailed techniques for
developing systems that will be profitable.

You will learn:
How trading and investing differ
Why almost all investors are traders
Comparison of trading system software
Introduction to AmiBroker trading software
How to evaluate trading eysteme
How to select a system thet you will be comfortable with
What to trade
How often to trade
How to use technical data
How to use fundamental data
‘Where to get data and how to prepare It
Principles af system design and testing
‘Specific entry signals
Several exit technique
Many trading system examples
How to analyze in-sarnple and out-of-sample results
‘Statistically sound validation techniques.
‘Walk forward testing
How to tell when a trading system is broken
Broad market timing
Intermarket analysis and fiters
Equity curve analysis
Sector analysis and rotation methods
Portfolio construction
Monte Caro analysis
Position sizing

Dx. Howaré Bandy has both the formal education and practical experience
required to write this book. He has degrees in mathematics, physics, engineering,
and computer science. He was a university professor of computer science and
‘mathematics, vice-president and designer of the major product for a company that
produced programs for stock selection and timing, and senior research analyst for
‘a commodity trading advisor where he held a Series 3 license.

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Quantitative
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Systems
Systems

Practical Methods
For Design,
Testing, and
Validation

Howard B. Bandy

Blue Ol evese
Copvsight 8 2u07 by Heseard Band All rghvs reserved. Na pant
of bie publication nay be raprortuced, sled in a retrieva! systen, or
Iraneeniee in any form or by any means eleetranic, mechanical, pho
lacopeing, recording, or otherwise without te por werinen peta
sion ofl ccpsyright holder, exrep! erie’ quotations used in a review

AnyBaokens a eardemsrk at AniBioker and Jomasy Janes ke,
Dakota fea niademark of leon Systems Ine

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Prbuished by

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3709 5. Westport Avene, S858
Shows Falle, SIP sper

Dubaished 21
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Digslainer

“is ble san aracatomal document. Nethiny in thisbook ie intended
s.nor should it heconstraed io he, investment adviee

The views expressed hers are the personal views of Dr (Toward Ik
TBonds. Neither the surnor nor the publisher, Huw Chel Press, have any
commeveial inlet in any of the proctacts mentioned. AIT Ha prac
ucts described were purchased by the author at eogalaeretal pri

Thvestirand trelong is risky aud can resus of prepa, Ni
ther this bok init entitety, nr uns’ portion Ehret nor any follow-cm
dasoussinn or correspondence related to this book, ix intended ro be 3
racemmendatin la fawest trade mata’ Aandls, stocks, commodities,
options, or ang eter fmareai insirameri. Neither the author ney the
TPuovsher sil) accep any responsiblity tor Tassos which roight ramlt
frm applications of the ideas oxprensed fo tay book cr From tenn
for trading systems described ia the book,

The: programa sea «snmp have Beam bested and ar belive
tobe corre Resolts we lepiand cr: the specie dit series uel, ease
verify the arearacy anal correctness ofall programs before nisin
In trate

her,
Contents

Profs rd Tntrsduction,
Quantitative Analysis
Data

Tring Systees Overview
Meauaring Bacco
Amik.

Tasan Selection,

Entries aod ait
Tatars an Tsiucatons
Trending Systeme.

‘Meat Reversion Systems,
Swasomality Aystares
Pattern Syston
Atuipating Sigoals
Suctor Analysis

tation

Peat:

ilns ad Fanny,
Tn-Sample Crakk Sample

Statistical tis
20
al

22

Wolk, Bueward
Survivor Blas.

‘Monte Casio snaly si

Appeinlia A Extconling AuniBeoker
Appa B ossary,

Appendia C Resources

sles
Preface and Introduction

Quastuntive Taavine Syren facies on thew Rapics

# Quuntiative analysis eeaniques as applied ar stocks, matual
Funds, exchange traded fands,fotuccs vontracls, awl cursercies

+ Anintraductien to Be AmiBrokeer program,

+ Design, testing, validation, and rmplementatinn of trading sy

TExcencant a given i

+ Teekmiques that have inallematical groundiag for exsnaple
equations rather thas chick puters

+ Teetinigs that are mcebunival and testable rather hae inere=

+ Selection of issues to be traded. sphirat holding periods, and cx
Teced drawdown

+ Analysis ofenéey methods exit method, stop placcinuat money
fnagement, end postion sizing.

+ Analysis of intermatcet varsibles,

+ Methods for broed net lion.
Mithods for validutior of tding systems, unludis whether
taal system ie afc footleeinble ne crade
Ie Quantitative Irading Systems

Tr arrog, De, Hostel Bast

2 Hacuniversity degrees ia mataematice, hysies, enguveer'ng. anal
eompulerscievre,

+ Bas specialized in alicia intelligence, appuied mathematics,
modeling and sinsula in.

+ Was prolessor of compute
sure deaa

+ Designed aad propaan mcd awell-baown pragma toy slave celee-
Hien and tiavieg

+ Was soni tesewtes analyst foe a CTA leading firm

jpnos ove mathemati, and a waiver

Thar pnogarsston of trading sistem development thal mast nenple use
1 Tavent. guess ee about, or tay a tiling ideo Usually that
reeig Fle more than aacenk lelinigue
Chee
2A Begin taiding using, in Men or cystem taniorens.
Une marke! Jee Then know whether it sarks or Hal
2b, Peagroun tha oo Tala AcuBuoker o¢ sore otset longuege, Les
the idea using, historical daa, snd evataale whether it woud hove
worked,
“Try to iuprove the ile
Peotnbly repeatedy
Either £2e.! he isea ve eventually begin uli,
Te make! Jets teat know wlthie i xrarks or nol
‘Phe purpuse of this bovk isn guile vou though path 2B oo tht wea.
‘eeu hegin rading Uhere isa higher likelihood that il is profitaie

Waar you wel Hwy wv 1S HOOK

+ Ap introduction re seanp
ive ane’ysis, Boyptasis is on reaovicu the eaystery Leon tras
Hl ode hat you stil Know abou, al decking eho thot
to not sork so yo. se to! need to vend Cte liad wg Het Out Sor
vyoursel

+ A tharough explanation of methods used to measure
wha tinting 9
ipclive (uation

+ Klewtitiration oe kay aspeuts of ealing systoun doveinganea
‘ud lechesigges to icvrporile thaw into your own tenlicg 698

tease

pects of tocunieal analysis aol spout

the goodness
stem ae usd nels to iguana Ube bs