The Trailing Stop

Santa Delivers Big Returns

Amazon's wishlist feature has been a wonderful tool for our family to communicate our gift desires ever since it was launched, and even helped to bring a few of the less tech-savvy of the group into the Internet age.

I suspect that my relatives think I am a bit odd. Or maybe just boring. For the last few years, my wish list has become increasingly populated with trading books, especially about hedge funds and systems development. Their suspicions didn't prevent them from granting my wishes however! This year I got a number of excellent books. Given the rarity of free time during our trip home for Christmas, I consumed two books in two days - a wonderful luxury!

The first was James Altucher's Trade Like a Hedge Fund : 20 Successful Uncorrelated Strategies & Techniques to Winning Profits. I liked this book very much for its straightforward discussion of systems and the thought process that goes into coming up with the ideas that generate them.

The examples given in the book are accompanied by clear charts and high level performance statistics, although I would have preferred to see the same statistics at the end of every example, perhaps a TradeStation or TradingBlox style report. Having these same statistics, for the same period, and preferable for the same instrument or market would have helped to give a comparative feel for the systems, although I recognize this would not have been applicable in some cases.

This book has recharged my enthusiasm for backtesting. I'll let you know how the systems test out. I recommend it to anyone who is interested in mechanical trading strategies and their development. Those interested in the world of Hedge Funds will also enjoy the correlation and risk management discussions throughout the book.

The second book I was read was Professional Stock Trading: System Design and Automation by Mark Conway and Aaron Behle.  In comparison to Altucher's book, this wasn't as enjoyable of a read - in the same way that a Chilton manual is not necessarily an enjoyable read. This book  is very practical, right down to providing the TradeStation code for the systems covered. If you aren't into typing, the code for these same systems is available on the author's website.

I haven't had the opportunity to backtest any of these systems yet, but today's market seems to change rapidly, so the usefulness of these system straight from the book/CD are probably limited. Their value, much like those in the the Altucher book, come from seeing the ideas that generated them and seeing the specifics of the code at work. Not being an TradeStation user myself, I will be converting these systems over for use in TradingBlox, and I expect the experience to be invaluable.

Another recommended read for those of you looking to get the rust off of systems development efforts. There is lots to inspire your efforts here.

Happy Trading!

Keep it Simple

In all of my reading about system design,  about trend following, and about the Turtles, one thing that always stood out to me was a recurring message that the most successful systems are simple enough to be written on the back of an envelope. Of course I think that in my mind I held that statement skeptically, because I can't imagine that John Henry bought the Marlins, then the Red Sox, with proceeds from a system that he wrote on the back of an envelope!

I  spent most of the day today working through a system based on one of Richard Donchian's rules, but felt frustrated most of the day. I regularly go back to the Trading Tribe website for inspiration, and it worked for me again today.  In the resources section of the Trading Tribe site there is a Study written by tribe member Easan Katir on the profitability of a simple 10/120 Crossover system. I decided to backtest a similar setup, and came away with amazing results! (I use TC2000 and TC Companion with end of day data to do my testing)

I will be working to refine this sytem and test  robustness across various markets, but suffice it to say that the early tests are showing that most any "refinements" only serve to worsen the profitability.