# Books on systems testing and design



## nizar (24 June 2007)

What are your favourites?

Any thoughts, opinions, recommendations?


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## MS+Tradesim (24 June 2007)

One you would have heard of (and probably read): _Trade Your Way to Financial Freedom_ by Van Tharp.

Another great one is the Tradesim manual.


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## nizar (24 June 2007)

MS+Tradesim said:


> One you would have heard of (and probably read): _Trade Your Way to Financial Freedom_ by Van Tharp.
> 
> Another great one is the Tradesim manual.




#1 read, and #2 to be purchased this week.
Thanks for the feedback bro.


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## lesm (24 June 2007)

1. Kaufman, Perry J., _New Trading Systems and Methods, Fourth Edition_

2. Pardo, Robert, _Design, Testing and Optimization of Trading Systems_

3. Conway, Mark R., and Behle, Aaron N., _Professional Stock Trading: System Design and Automation_

4. Weisman, Richard L., _Mechanical Trading Systems: Pairing Trader Psychology with Technical Analysis_


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## nizar (24 June 2007)

Thanks lesm.
I heard Mark Conways book only useful if you have tradestation?
Thoughts?


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## It's Snake Pliskin (25 June 2007)

Nizar,

I wont try to inflame.

Tushar Chande 'Beyond technical analysis'


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## tech/a (25 June 2007)

Similar to *lesm*

Ive read many on the topic.

The very best is *Trading Systems and Methods by
Perry Kaufman*,a background in maths is helpful.
But even if only rudementary re maths an absolute MUST.

Its difficult to find really good books on System design.

I have 4.
The one above.
*Trading Systems (Secrets of the Masters).*Joe Krutsinger 
*Design,Testing,and Optimisation of Trading Systems*.Robert Pardo.
*Computerised Trading *by Jurik.

Of them All Pay the $$s and get Kaufman.


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## Kauri (25 June 2007)

Leon Wilson (from Tassie) recently wrote his second book in which he walks through all the stages of building and testing a mechanical system using MS/Bullcharts and TS. Ends up with a decent system too.... Very thorough explaining everything as it was built and tested... some good code for stops etc with their TS results... Have packed all my books away but from memory I think it was called "Business of shareTrading"??? or something similar.
.Cheers
.......Kauri


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## Temjin (25 June 2007)

tech/a said:


> Similar to *lesm*
> 
> Ive read many on the topic.
> 
> ...




I agree with Tech/A that Perry Kaufman's book is one of the best out there.

Another one to look at is,

*Technical Traders Guide to Computer Analysis of the Futures Markets* by Charles Lebeau, David W. Lucas.


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## nizar (24 August 2007)

Way of the turtle by Curtis Faith probably deserves a place in this thread


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## howardbandy (24 August 2007)

Greetings --

And there is Quantitative Trading Systems, written by --- me.

Thanks,
Howard Bandy
www.quantitativetradingsystems.com


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## CanOz (24 August 2007)

howardbandy said:


> Greetings --
> 
> And there is Quantitative Trading Systems, written by --- me.
> 
> ...




And a fine book it is Howard. I was going to suggest it but Nizar has Metastock. 

Glad to see you finally dropped in for a gander, there may be a few who bought your book here by now.

Cheers,


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## Seaking (24 August 2007)

> Greetings --
> 
> And there is Quantitative Trading Systems, written by --- me.
> 
> ...




Still on my first read, and it is a great book so far. Well done Howard..


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## nizar (24 August 2007)

howardbandy said:


> Greetings --
> 
> And there is Quantitative Trading Systems, written by --- me.
> 
> ...




Howard can this book only be purchased on your website or is there somewhere else i can get it? eg. Borders.


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## CanOz (24 August 2007)

nizar said:


> Howard can this book only be purchased on your website or is there somewhere else i can get it? eg. Borders.




I see hes not online Nizar so i'll tell you what i know...and thats that the book can only be purchased directly from him...99% sure.

Very Amibroker based, but relevant none-the-less.

If i was in Australia i would lone you mine, won't be needing it until retirement the way i'm going.

Cheers,


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## howardbandy (25 August 2007)

CanOz said:


> And a fine book it is Howard. I was going to suggest it but Nizar has Metastock.
> 
> Glad to see you finally dropped in for a gander, there may be a few who bought your book here by now.
> 
> Cheers,




Thanks for the kind words.

The book, Quantitative Trading Systems, is only available through the book's web site:
http://www.quantitativetradingsystems.com/index.html

A few of the reasons that the book is not available through Borders or Amazon are posted on the /pricing page.

But, those people who have bought the book are satisfied with it.  Some comments and reviews can be seen on the /testimonials page.

Of all the books being shipped to addresses outside the United States, Australia accounts for 40%.  Thank you all very much.

---

I've made a few posts to the "Robustness" thread, too.

Howard


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## Sir Burr (25 August 2007)

howardbandy said:


> Of all the books being shipped to addresses outside the United States, Australia accounts for 40%.  Thank you all very much.




No worries and thanks for the bubble wrap/rugged packaging and fast delivery!


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## nizar (25 August 2007)

CanOz said:


> I see hes not online Nizar so i'll tell you what i know...and thats that the book can only be purchased directly from him...99% sure.
> 
> Very Amibroker based, but relevant none-the-less.
> 
> ...




Looks like im gonna have to get myself a copy then.
But not yet -- Im about to start on Kaufman.

And good to hear your still alive Can, lol.
I hope things are well


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## motorway (28 October 2007)

http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470117664,descCd-tableOfContents.html


Philip J. McDonnell

Anyone Know anything about this fellow ?

I have not seen this book
But what I have seen from Him

I have been impressed by

motorway


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## tech/a (28 October 2007)

motorway said:


> http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470117664,descCd-tableOfContents.html
> 
> 
> Philip J. McDonnell
> ...




MW.
I'm suprised that you have an interest in systems based trading.

Have you systemised any of Wyckoffs works?


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## motorway (28 October 2007)

There is always huge scope
In gaining useful perspectives

esp from those who are rigorous and innovative in quantitative testing..

The themes in Wyckoff don't necessarily mean they can not be quantified or tested.. it is a matter of working out how and realizing that it will always be limited and more suggestive than definitive...

eg here are some bits and pieces I had come across from this Author..



> Using a profit target will:
> 1.  Double the probability of being at or above that target at the end of a fixed period of time.
> 2.  Have no impact on your expected gain or loss.
> 3.  Reduce your variance and standard deviation
> ...




*You need an edge ”” never let your money leave home without it.*



> The ultimate question. Is our fate (and trading success) predetermined or do we have some control over it?
> 
> Perhaps a better way to express the problem is through the paradigm of statistical thinking. In statistics the central concept is randomness. Randomness is actually a very deep philosophical issue. It is not the same for all people. Rather randomness depends greatly upon what you know, and different people know different things.
> 
> ...





*Randomness is actually a very deep philosophical issue. It is not the same for all people. Rather randomness depends greatly upon what you know, and different people know different things.*

* A little counting can greatly reduce the randomness in our trading.
*



> Encoding prices as Binary Codes, from Philip J. McDonnell
> 
> Claude Shannon's work on information theory demonstrated conclusively that all information could be efficiently represented in binary code. This breakthrough enabled tremendous advances in digital communications. In addition nearly every computer since that time has used some form of binary storage for both numbers and character oriented information.
> 
> ...





*With recent discussion of information theory it is appropriate to note that price patterns can be conveniently encoded as binary patterns as well. *


All of these points are principles of the Wyckoff Mehod

The last is Wyckoff P&F methodology for goodness sake 

So I am interested .....
( The above  are not quotes from the book . But I think it is his only book to date)


He makes a distinction between counting and TA



> Perhaps most importantly, counting looks to repeatable observations and analyses. What one observer sees and analyzes looks the same to another counter. Observations are objectively repeatable. By contrast, TA allows chart interpretations. A pattern which one trained analyst sees on a chart may not be interpreted the same way by another. TA allows subjective non-repeatable interpretation whereas counting does not.
> 
> Counting requires some sort of significance testing. To my knowledge there is no TA testing software which includes any sort of significance testing. In fact the only time a standard deviation is normally used in TA is in the calculation of John's own Bollinger Bands.




Your knowledge through tradeguider should allow you to see Wyckoff is about counting not TA in this sense

A SOS a Test etc even a "binary pattern" on a P&F chart
are all 







> repeatable observations and analyses




price volume and time can be given quantifiable definitions
But relative to the prior data

This is exactly what tradeguider tries to do  for You
and Wyckoff teaches You to do

P&F patterns are Quantities
No ambiguity at all..

motorway



motorway


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## nizar (28 October 2007)

Thanks for your posts motorway.
I had a look at your link to the book and its looks good.

I already have 2 books on my shelf that havent been read yet, but i will put this one next on the list.


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## motorway (28 October 2007)

Some last interesting snippets from Philip J. McDonnell .

Are moving averages on time series data totally useless or just almost useless  ( and what of other such indicators ) ?

Is market behavior best analysed as waves of buying and selling that gather and lose followings ?

Is the key really to be had by noting Where the ""volume comes in"
and what the  subsequent response is in the context of prior price movement ?


These three points correspond to...

motorway



> The Slutsky-Yule Theorem is quite old and says that taking a moving average of a time series induces periodic motion even though none existed in the data itself. This topic arises periodically. One need not feel to bad after falling into this trap.
> 
> There is the famous story of Holbrook Working, a big name economist and arguably the best statistician in the government's employ. His paper, published in the 1960s compendium Random Character of Stock Market Prices seemed to show positive serial correlation in monthly prices. Thus it was a counterpoint to the argument for the random walk. The trend following crowd was born and looked to papers by Working, Alexander and Levy as proof that trend following was the Holy Grail.
> 
> ...









> The Traveler's Dilemma and Prisoner's Dilemma are two examples of cooperative-competitive games. They contain aspects of reward for cooperative behavior and rewards for competitive behavior. In the Traveler's Dilemma game picking a higher number is cooperative play. The player is maximizing the reward to the two-player community. Picking the low Nash Equilibrium is competitive play. The player is maximizing the minimum reward. Naturally as the reward for competitive play increases the number of actual players using competitive strategies increases as well.
> 
> There is a strong parallel to the market. If we all buy stocks with all of our money they will go up. The community of investors will all gain. But human nature being what it is we will always be at least somewhat fearful that someone else will sell first and we will be the last to get out. Thus based on a news event or even non-news some will choose the competitive choice to get out early. They seek to avoid the maximum risk of a putative future decline by getting out before the other guy. However the long-term drift strongly indicates that such anti-cooperative behavior is self-defeating and leads to opportunity loss.







> Sometimes we do not have the luxury of a perfectly sorted list of items. Occasionally the list may have increasing values up to a certain point and then declining values thereafter. Such an arrangement is known as an unimodal distribution ”” it has only one peak somewhere in the middle. For example a list of the probability values of the normal distribution would have one peak in the middle and a decline thereafter. In optimization problems such a pattern arises quite naturally, with the values to be optimized rising up to a certain point, after which they will fall. That point is the optimum (maximum).
> 
> To search a unimodal list the search of choice is called a Fibonacci Search which relies on the spacing between the Fibonacci numbers to calculate its next step size. As such it is more adaptable than the binary search. Under certain circumstances it can be shown that the Fibonacci search is an optimal search algorithm for such problems.
> 
> ...


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## motorway (28 October 2007)

One last time again ... 



> Pundits have often referred to market gyrations as a price discovery process. The mental image being one of seeking an optimal price via some inscrutable search algorithm. Economists also subscribe to this meme with their ever present assumption of price equilibrium. Implicit in this kind of thinking is that markets will settle down to some sort of stable price in the absence of news shocks. The flaw in both lines of thinking is that speculative markets are never stable - they always fluctuate. *What the markets are trying to discover is not price at all but rather volume.* In effect the markets are searching for that price level which will maximize volume. It is volume and order flow which nourishes the fixed overhead of the industry which feeds on the the markets. The price is irrelevant to the industry as long as the volume is maximized. Fundamentally this is the reason that *markets will always fluctuate*. When the market moves up it stimulates sellers to sell who were waiting for their price. At the same time buyers who are trend followers or break out players will buy. The price can move up until volume fades. Then it moves down seeking a new volume peak. The down move brings out new buyers waiting for their price. Sliding prices also stimulate new sellers who are momentum players or simply cutting losses via stops. _It is the movement of markets which stimulates volume and the ecology of the market will always seek to maximize volume._




Wyckoff Lives 

In Wyckoff Terms

The market is there for the benefit of the CM ( Composite Man also called the CO Composite Operator )

And His campaigns are what make it fluctuate




> You say all this is unethical, if not unscrupulous. You say it is a
> cruel and crooked game. Very well. Electricity can be very cruel,
> but you can take advantage of it; you can make it work for your
> benefit. Just so with the stock market and the Composite Man. Play
> ...


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## RichardE (29 October 2007)

Kauri wrote



> Leon Wilson (from Tassie) recently wrote his second book in which he walks through all the stages of building and testing a mechanical system using MS/Bullcharts and TS. Ends up with a decent system too....




I have read that book. It was actually his third and was called "Breakthrough Trading". A very interesting and enlightening read it was too.

Cheers

Richard.


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## Wysiwyg (14 December 2009)

From the Bob Pardo Capital Limited  website.


> All PCL client funds are *exclusively managed by a sophisticated **proprietary trading system. *This system, *XT99, is an advanced* *algorithmic trading program, signaling all buys and sells* across a multitude of international markets and asset classes and *without* *human emotion or judgment.*



This is what designing, testing and implementing a trading system is all about. Removing the human emotive factor to produce a positive average return. This is all secret traders business but I can't imagine how any set of instructions could be so fantastic as to warrant such hush hush. What exactly is an advanced algorithm? Are they a combination of (as yet unheard of ) indicators that, when aligned, produce these buy/sell signals.

Also on the website is ...







> Trading systems cover numerous strategies, including moving-average crossovers, volatility breakouts, channels, day patterns, chart patterns, etc.



So it isn't anything magical or something no one knows.


I'm sorry but it seems there is a lot of hype surrounding algorithmic trading and there is literally hundreds of thousands of dud systems already created. 

Is this another money spinning business within the securities trading industry? Having traders chasing their tails.


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## sbuxfan (10 February 2010)

Does anyone have evidence that mechanical trading/algo trading systems indeed generate profits except by random luck to a few people?
I notice that the best CTA/Hedge fund consistency can make 25-30% over a decade. Is this type of gain even possible to the individual with $100,000 trading account and if so, would it ever be more profitable to trade than a $70,000/year job?


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## tech/a (10 February 2010)

Yes.

There is a system which has been running live for 8 yrs on the net.
Still is.
It started with $30k with the capacity for margin and had a peak equity of $450 odd K
It currently has around $350K balance.

I cannot post the link here due to ASF policy.
However if you wish to PM me I will supply the link (unless ASF mods tell me thats not allowed either).
If so then it will remain faceless---but yes I do know of at least one.


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## tech/a (10 February 2010)

> would it ever be more profitable to trade than a $70,000/year job?




$100k initially in my view NO.
Potentially yes.
But would need for most systems ideal conditions which suit the system for a long period of time.
Then the power of compounding and leverage can kick in.


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## Trembling Hand (10 February 2010)

sbuxfan said:


> I notice that the best CTA/Hedge fund consistency can make 25-30% over a decade. Is this type of gain even possible to the individual with $100,000 trading account and if so, would it ever be more profitable to trade than a $70,000/year job?




Its not comparable in a lot of ways. A hedge fund and CTA will trade with their money in a very different fashion to the way someone with a robust system would. And don't forget that they also have a larger drag due to admin & commission cost.


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## sbuxfan (11 February 2010)

Thanks all for your kind feedback. I will not take up the offer to view the direct results of the trading system but thank for the offer.

I have only been trading for 1.5 years and I was discouraged and wondering if anyone can achieve profit. I need to find this out for myself in order to truly believe it. I have been experimenting with day trading systems and am not ready to give up yet and move to position trading.


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## sbuxfan (12 February 2010)

Can anyone recommend a book for trading system design ( as opposed to testing ). I just ordered the Bandy book QTS but I think its about testing. I also have gone thru the Pardo book but again this is about testing.

I'm looking for a book that teaches best practices, principles of the actual design steps and process ( e.g. I am familiar with Object Oriented design  and design patterns so this is an analogy of what I am looking for.


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## Knoxy (12 February 2010)

Tushar Chande - Beyond Technical Analysis: How to develop and implement a winning trading system

I also like Charlie Wright - Trading for a Living although it's a lot about testing

Hard to find now, but the Omega Research 'System Trading and Development Club' STAD volumes 1 - 13 very good on system ideas. I pull them out quite often and tweak their ideas and retest.


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## Knoxy (12 February 2010)

Ooops Charlie Wrights book is Trading as a Business. A free download.

High Probability Trading by Marcel Link is the book I'm currently reading, pretty good.


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