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Trading Systems

A new approach to system development and portfolio optimisation

By Emilio Tomasini and Urban Jaekle

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About the Authors

Emilio Tomasini

Emilio Tomasini is a proprietary trader for many European banks and hedge funds and Adjunct Professor of Corporate Finance at the University of Bologna, Italy. His website is EmilioTomasini.com.

Urban Jaekle

Urban Jaekle has been trading stocks for over 25 years and futures for over 20 years. Currently he is working on market rotation and momentum strategies. His new work can be found on his website www.Urban-Stocks.com.

Contents Listing

Acknowledgments
Preface

Part I: A Practical Guide to Trading System Development and Evaluation

1. What is a trading system?
1.1 An easy example of a trading system
1.2 Why you need a trading system
1.3 The science of trading systems

2. Design, test, optimisation and evaluation of a trading system
2.1 Design
2.2 Test
2.3 The forecasting power of a trading system
2.4 Evaluation of a Trading System
2.5 Conclusion


PART II: Trading System Development and Evaluation of a Real Case

3. How to develop a trading system step by step - using the example of the British Pound /US dollar pair
3.1 The birth of a trading system
3.2 First evaluation of the trading system
3.3 Variation of the input parameters: optimisation and stability diagrams
3.4 Inserting an intraday time filter
3.5 Determination of appropriate exits - risk management
3.6 Summary: Step-by-step development of a trading system

4. Two methods for evaluating the system's predictive power
4.1 Timescale analysis
4.2 Monte Carlo Analysis

5. The factors around your system
5.1 The market's long/short bias
5.2 Out-of-sample deterioration
5.3 The market data bias
5.4 Optimization and over-fitting
5.5 Rule complexity explained with polynomial curve fitting

6. Periodic re-optimisation and walk forward analysis
6.1 Short repetition: "normal", static optimisation
6.2 Anchored vs. rolling walk forward analysis (WFA)
6.3 Rolling WFA on the LUXOR system
6.4 The meaning of sample size and market structure

7. Position sizing on the example of the LUXOR system
7.1 Definitions: money management vs. risk management
7.2 Application of different MM schemes
7.3 Monte Carlo analysis of the position sized system
7.4 Conclusion


Part III: Systematic Portfolio Trading

8. Dynamic Portfolio Construction
8.1 Introduction to Portfolio Construction
8.2 Correlation among equity lines
8.3 A dynamic approach: equity line crossover
8.4 Dynamic portfolio composition: the walk forward analysis activator
8.5 Largest losing trade/largest losing streak/largest drawdown

Conclusion

Appendices

Appendix 1: Bollinger Band system
Appendix 2: The Triangle system
Appendix 3: Portfolios with the LUXOR trading system

Bibliography
Index
Acknowledgments
Preface

Part I: A Practical Guide to Trading System Development and Evaluation

1. What is a trading system?
1.1 An easy example of a trading system
1.2 Why you need a trading system
1.3 The science of trading systems

2. Design, test, optimisation and evaluation of a trading system
2.1 Design
2.2 Test
2.3 The forecasting power of a trading system
2.4 Evaluation of a Trading Syste ...

Jacket Text

"The key is how to adapt existing codes to the current market conditions, how to build a portfolio and how to know when the moment has come to stop one system and start another one."

Every day there are traders who make a fortune. It may seem that it seldom happens, but it does - as William Eckhardt, Ed Seykota, Jim Simons, and many others remind us. You can join them by using systems to manage your trading.

This book explains exactly how you can build a winning trading system. It is an insight into what a trader should know and do in order to achieve success in the markets, and it will show you why you don't need to be a rocket scientist to build a winning trading system.

There are three main parts to Trading Systems. Part One is a short, practical guide to trading systems' development and evaluation. It condenses the authors' years of experience into a number of practical tips. It also forms the theoretical basis for Part Two, in which readers will find a step-by-step development process for building a trading system, covering everything from initial code writing to walk forward analysis and money management. Part Three shows you how to combine a number of trading systems, for all the different markets, into an effective portfolio of systems.

A trader can never really say he was successful, but only that he survived to trade another day; the "black swan" is always just around the corner. Trading Systems will help you find your way through the uncharted waters of systematic trading and show you what it takes to be among those that survive. A new approach to system development.

Media Coverage

Systems for Trading

About the Authors

Urban Jaekle holds a diploma in Physics. He is a regular speaker at the main European trading events and contributes to Traders and Active Trader magazine. His main business is ...

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Media Review

Emilio Tomasini and Rakesh Shah are running a free seminar about trading systems at the London School of Economics on 20th October 2011.

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Systemsfortraders.com

"A thoroughly interesting read that contains a wealth of information...I would go so far as to say that for anyone who is using a systemic approach to their trading that they will find something of ...

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Media Review

excellent; one that I'm sure will become the benchmark in its field- What Really Profits?September 2009

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Ytemagazine.com

A great book...gives a great insight into what is required and why- Your Trading EdgeNovember/December 2009

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