Building Winning Algorithmic Trading Systems, + Website: A Trader’s Journey from Data Mining to Monte Carlo Simulation to Live Trading - Original PDF

دانلود کتاب Building Winning Algorithmic Trading Systems, + Website: A Trader’s Journey from Data Mining to Monte Carlo Simulation to Live Trading - Original PDF

Author: Kevin J. Davey

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Develop your own trading system with practical guidance and expert adviceInBuilding Algorithmic Trading Systems: A Trader's Journey From Data Mining to Monte Carlo Simulation to Live Training, award-winning trader Kevin Davey shares his secrets for developing trading systems that generate triple-digit returns. With both explanation and demonstration, Davey guides you step-by-step through the entire process of generating and validating an idea, setting entry and exit points, testing systems, and implementing them in live trading. You'll find concrete rules for increasing or decreasing allocation to a system, and rules for when to abandon one. The companion website includes Davey's own Monte Carlo simulator and other tools that will enable you to automate and test your own trading ideas. A purely discretionary approach to trading generally breaks down over the long haul. With market data and statistics easily available, traders are increasingly opting to employ an automated or algorithmic trading system--enough that algorithmic trades now account for the bulk of stock trading volume.Building Algorithmic Trading Systemsteaches you how to develop your own systems with an eye toward market fluctuations and the impermanence of even the most effective algorithm. Learn the systems that generated triple-digit returns in the World Cup Trading Championship Develop an algorithmic approach for any trading idea using off-the-shelf software or popular platforms Test your new system using historical and current market data Mine market data for statistical tendencies that may form the basis of a new system Market patterns change, and so do system results. Past performance isn't a guarantee of future success, so the key is to continually develop new systems and adjust established systems in response to evolving statistical tendencies. For individual traders looking for the next leap forward,Building Algorithmic Trading Systemsprovides expert guidance and practical advice.

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I wanted to throw up. The bile in my stomach had reached an unsustainable level, but there was no bathroom near me. Speeding down the freeway at 75 miles per hour, with no exit in sight, I’d have to swallow hard and accept my fate. I really wanted to just curl up and die. Well, not exactly. I wanted to vomit first, then curl up and die. Was it trichinosis from eating pork not cooked to shoe leather consistency, as my Mom always predicted would happen? Nope. An undercooked juicy red hamburger laced with E. coli? Not exactly. It was meat that was the culprit, but in the form of live cattle. Live cattle futures, to be exact. Live cattle, all 40,000 pounds of them, had led to my sudden urge to vomit. Specifically, bovine spongiform encephalopathy, more commonly known as mad cow disease. I didn’t have the disease, but my ill-fated speculative investment did. This was at the end of December 2003, a month that had started with great personal and professional promise. I recently had been promoted to vice president of quality assurance at Argo-Tech, the midsize aerospace firm I was lucky enough to be part of, before it was bought out by a soulless mammoth corporation. I also had been honored as a “40 Under 40” recipient from Crain’s Cleveland Business magazine—recognized as one of Cleveland, Ohio’s, up-and-coming business stars under the age of 40. My futures trading account was doing pretty well, to the point where I felt confident I knew what I was doing (many times that feeling is soon followed by a slap in the face by the market, but I digress). Finally, my first child was on the way in a few months. All things considered, I was on a roll. Then disaster struck. Three times. Quickly. On December 12, 2003, my beautiful and amazing wife Amy and I had our first son, Anthony. He was two months premature and was stillborn. The joy of planning for the arrival of our firstborn suddenly and tragically became planning for a funeral and burial. It is nearly impossible to understand the gut-wrenching pain that comes with losing a child, until it happens to you. I certainly was not prepared for it. Dreams were destroyed that day, life suddenly became unfair, hope and joy seemed a distant memory. Needless to say, Amy and I were both mentally, physically, and emotionally devastated. Less than a week later, on December 17, the second calamity hit. My father passed away on his 75th birthday. Ironically, after three open-heart bypass surgeries over the previous 30 years, it was not his clogged arteries that got him, but cancer—a nasty cancer that is common to chimney sweepers. That made sense, I suppose, since he was a firefighter, and in his prime chased many raccoons out of chimneys, as the co-owner of a pest control company. After watching him lying in bed while life slowly left his body, my head began spinning like a top. To say I could not think straight was an understatement.

چکیده فارسی

 

می‌خواستم پرت کنم. صفرای معده ام به حد ناپایداری رسیده بود، اما دستشویی نزدیکم نبود. با سرعت 75 مایل در ساعت از بزرگراه پایین می‌روم، بدون هیچ خروجی، باید به سختی آب دهانم را قورت دهم و سرنوشتم را بپذیرم. من واقعاً می خواستم خم شوم و بمیرم. خوب، نه دقیقا. می خواستم اول استفراغ کنم بعد جمع شوم و بمیرم. آیا تریکینوز از خوردن گوشت خوک پخته نشده تا قوام چرم کفش، همانطور که مادرم همیشه پیش‌بینی می‌کرد، اتفاق می‌افتد؟ جواب منفی. یک همبرگر قرمز آبدار کم پخته شده با E. coli؟ نه دقیقا. این گوشت بود که مقصر بود، اما به شکل گاو زنده. به طور دقیق، آینده گاو زنده. گاوهای زنده که همه آنها 40000 پوند بودند، به اصرار ناگهانی من برای استفراغ منجر شده بود. به طور خاص، آنسفالوپاتی اسفنجی شکل گاوی، که بیشتر به عنوان بیماری جنون گاوی شناخته می شود. من این بیماری را نداشتم، اما سرمایه‌گذاری سوداگرانه‌ی بد من چنین بود. این در پایان دسامبر 2003 بود، ماهی که با وعده های شخصی و حرفه ای بزرگ آغاز شده بود. من اخیراً به سمت معاون تضمین کیفیت در Argo-Tech ارتقاء یافته بودم، شرکت هوافضای متوسط ​​که به اندازه کافی خوش شانس بودم که بخشی از آن باشم، قبل از اینکه توسط یک شرکت ماموت بی روح خریداری شود. من همچنین به‌عنوان دریافت‌کننده «40 زیر 40 سال» از مجله تجارت Crain's Cleveland - که به عنوان یکی از ستاره‌های کسب‌وکار آینده‌دار کلیولند، اوهایو، زیر 40 سال سن شناخته می‌شود، مفتخر شده بودم. حساب معاملات آتی من بسیار خوب بود. نقطه ای که در آن احساس می کردم مطمئن بودم که می دانم چه کار می کنم (بسیاری اوقات این احساس به زودی با سیلی به صورت بازار همراه می شود، اما من پرت می شوم). بالاخره بچه اولم بعد از چند ماه در راه بود. همه چیز را در نظر گرفت، من در یک رول بودم. سپس فاجعه رخ داد. سه بار. به سرعت. در 12 دسامبر 2003، من و همسر زیبا و شگفت انگیزم، امی، اولین پسرمان، آنتونی را به دنیا آوردیم. او دو ماه نارس بود و مرده به دنیا آمد. لذت برنامه ریزی برای آمدن اولین فرزندمان به طور ناگهانی و غم انگیز تبدیل به برنامه ریزی برای تشییع و تدفین شد. تقریباً غیرممکن است که درد دلخراشی را که با از دست دادن کودک به وجود می آید درک کنید، تا زمانی که برای شما اتفاق بیفتد. مطمئناً برای آن آماده نبودم. آن روز رویاها نابود شدند، زندگی ناگهان ناعادلانه شد، امید و شادی خاطره ای دور به نظر می رسید. نیازی به گفتن نیست که من و امی هر دو از نظر روحی، جسمی و روحی ویران شده بودیم. کمتر از یک هفته بعد، در 17 دسامبر، دومین فاجعه رخ داد. پدرم در 75 سالگی فوت کرد. از قضا، پس از سه عمل جراحی بای پس قلب باز در طول 30 سال گذشته، گرفتگی رگهای او نبود، بلکه سرطان بود - سرطانی بد که در دودکش‌روها رایج است. فکر می‌کنم این منطقی بود، زیرا او یک آتش‌نشان بود و در دوران اوج خود راکون‌های زیادی را به عنوان مالک یک شرکت کنترل آفات از دودکش‌ها بیرون می‌کشید. پس از تماشای او که در رختخواب دراز کشیده بود، در حالی که زندگی به آرامی بدنش را ترک کرد، سرم مانند یک تاپ شروع به چرخیدن کرد. اینکه بگویم نمی‌توانم درست فکر کنم، دست کم گرفتن بود.

 

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Author(s): Kevin J. Davey

Publisher: Wiley, Year: 2014

ISBN: 1118778987,9781118778982

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CONTENTS Acknowledgments About the Author Introduction Who Can Benefit from This Book? PART I A TRADER’S JOURNEY CHAPTER 1 The Birth of a Trader My Moving Average Debacle CHAPTER 2 Enough Is Enough Research You Can’t Lose—Or Can You? Averaging Down—Adding to Losers The Wild Man Emerges Time to Evaluate CHAPTER 3 World Cup Championship of Futures Trading® Triumph 2005 2006 2007 Reflections on the Contest CHAPTER 4 Making the Leap—Transitioning to Full Time Confidence Capital Living Expenses Family Support Home Office Setup Trading Strategies Brokers Free Time Taking the Plunge PART II YOUR TRADING SYSTEM CHAPTER 5 Testing and Evaluating a Trading System Historical Back Testing Out-of-Sample Testing Walk-Forward Analysis Real-Time Analysis CHAPTER 6 Preliminary Analysis CHAPTER 7 Detailed Analysis What Is Monte Carlo Analysis? 6 Inputs to Monte Carlo Simulator Limitations of the Simulator Simulator Output Summary CHAPTER 8 Designing and Developing Systems Isn’t It All Just Optimizing? PART III DEVELOPING A STRATEGY CHAPTER 9 Strategy Development–Goals and Objectives CHAPTER 10 Trading Idea How Will You Enter a Market? How Will You Exit a Market? What Markets Will You Trade? What Type of System Do You Want? What Time Frame/Bar Size Will You Trade? How Will You Program the Strategy? CHAPTER 11 Let’s Talk about Data How Much? Pit or Electronic Data? Continuous Contracts The Impact of Electronic Markets Testing with Forex Data Summary CHAPTER 12 Limited Testing Entry Testing Exit Testing Exit Evaluation Criteria Core System Testing Monkey See, Monkey Do CHAPTER 13 In-Depth Testing/Walk-Forward Analysis No Parameters A Walk-Forward Primer Walk-Forward Inputs Fitness Function Anchored/Unanchored Running the Analysis Put the Walk-Forward Strategy Together CHAPTER 14 Monte Carlo Analysis and Incubation Incubation Evaluating Incubation CHAPTER 15 Diversification 7 Designing with Diversification in Mind Measuring Diversification CHAPTER 16 Position Sizing and Money Management No Optimum Position Sizing Risk and Reward Are a Team Position Sizing Can Be Optimized Losing Systems Cannot Become Winners Winning Systems Can Become Losers The Fantasy of Size Short Term—Go for Broke No Position Sizing = No Good! Strategy, Then Position Size, or Strategy and Position Size Together? Positioning Size—Single System Positioning Size—Multiple Systems CHAPTER 17 Documenting the Process Trading Goals Trading Idea Limited Testing Walk-Forward Testing Monte Carlo Testing Incubation Testing Diversification Check Position-Sizing Check Final Notes One Final List PART IV CREATING A SYSTEM CHAPTER 18 Goals, Initial and Walk-Forward Testing Developing a New Strategy Limited Testing Walk-Forward Testing CHAPTER 19 Monte Carlo Testing and Incubation Euro Day Strategy Euro Night Strategy Euro Day and Night Strategy Incubation Are Results Similar? Final Information Position Sizing Correlation with Other Strategies Monte Carlo—Consistency 8 Eliminating Big Days Outlier Days PART V CONSIDERATIONS BEFORE GOING LIVE CHAPTER 20 Account and Position Sizing When to Quit Minimum Funding Size Position Sizing Unequal Position Sizing CHAPTER 21 Trading Psychology When to Begin Trading When to Quit CHAPTER 22 Other Considerations before Going Live Accounting, Trading Brokers Automation, Unattended, VPS, Where Are Orders Kept? Rollover Considerations PART VI MONITORING A LIVE STRATEGY CHAPTER 23 The Ins and Outs of Monitoring a Live Strategy How to Build an Equity Curve (and a Drawdown Curve, Too!) Monthly Summary Chart How to Use This Graph Tracking Expected and Actual Performance CHAPTER 24 Real Time Four-Week Review—September 13, 2013, End Date Update after Week 7 Week 8 Review Week 9—Automated Trading Issues Week 9—Limit Order Fills (October 28, 2013) Week 12 Review Week 13—Time Limit Review Week 15 Review Future Reviews PART VII CAUTIONARY TALES CHAPTER 25 Delusions of Grandeur Don Demo Gus the Guru Paul the Predictor Cal the Complication King Pay Me Peter Frank Five Hundred Billy the Boaster 9 Connie the Compounder Ian versus the Illuminati Suki the Spinner Paolo the Plagiarizer Slick Sam The Delusion Conclusion Conclusion APPENDIX A Monkey Trading Example, TradeStation Easy Language Code Strategy 1: Baseline Strategy (No Randomness) Strategy 2: Random Entry, Baseline Exit Strategy Strategy 3: Baseline Entry, Random Exit Strategy Strategy 4: Random Entry, Random Exit Strategy APPENDIX B Euro Night Strategy, TradeStation Easy Language Format APPENDIX C Euro Day Strategy, TradeStation Easy Language Format About the Companion Web Site Index End User License Agreement List of Tables Chapter 7 TABLE 7.1 Chapter 12 TABLE 12.1 TABLE 12.2 TABLE 12.3 TABLE 12.4 Chapter 13 TABLE 13.1 TABLE 13.2 Chapter 15 TABLE 15.1 TABLE 15.2 TABLE 15.3 Chapter 18 TABLE 18.1 Chapter 19 TABLE 19.1 10 Chapter 20 TABLE 20.1 List of Illustrations Introduction FIGURE 0.1 Mad Cow Disease Causes Live Cattle Futures to Collapse Chapter 1 FIGURE 1.1 Sugar Skyrocketing = Unlimited Profits? FIGURE 1.2 Good Head and Shoulders Pattern or Just a False Signal? FIGURE 1.3 Many Head and Shoulders Look Good but Eventually Fail FIGURE 1.4 Great in Trends, Moving Averages Fail in Trading Ranges FIGURE 1.5 Triple Moving Average Crossovers Can Be Deceiving Chapter 2 FIGURE 2.1 In 1998, Wheat Was at a Five-Year Low FIGURE 2.2 My Last Gasp with Averaging Down in Wheat Chapter 3 FIGURE 3.1 My Equity Chart, 2005 World Cup Contest Account FIGURE 3.2 My First-Place Equity Chart, 2006 World Cup Contest Account FIGURE 3.3 Copper Skyrocketed, and I Was Long FIGURE 3.4 My Equity Chart, 2007 World Cup Contest Account Chapter 4 FIGURE 4.1 My Contest Trophies Chapter 5 FIGURE 5.1 Trading System Results—Is This Believable? FIGURE 5.2 BS Meter for Trading System Results FIGURE 5.3 Optimized Results Frequently Fall Apart after Testing FIGURE 5.4 Out-of-Sample Testing Results FIGURE 5.5 Walk-Forward Analysis FIGURE 5.6 Walk-Forward Testing Results Chapter 6 FIGURE 6.1 Sample Performance Report FIGURE 6.2 Sample Equity Curve Chapter 7 FIGURE 7.1 Monte Carlo Simulator Inputs FIGURE 7.2 Monte Carlo Simulator Outputs 11 FIGURE 7.3 Account Size and Risk of Ruin FIGURE 7.4 Maximum Drawdown Explained Chapter 8 FIGURE 8.1 My Strategy Development Process Chapter 9 FIGURE 9.1 SMART Goals FIGURE 9.2 Sample Trading System “Wish List” Chapter 10 FIGURE 10.1 Don’t Assume that Settlement Price = Last Price Traded Chapter 11 FIGURE 11.1 Contract Prices Will Be Different for Different Months FIGURE 11.2 Back-Adjusted Continuous Contracts Can Have Negative Prices Chapter 12 FIGURE 12.1 Sample System Walk-Forward Performance Chapter 13 FIGURE 13.1 Walk-Forward Results vs. Optimized Results, as Developed FIGURE 13.2 Walk-Forward Results vs. Optimized Results, Before and After Development FIGURE 13.3 Anchored vs. Unanchored Walk-Forward Analysis FIGURE 13.4 Walk-Forward Test, Inside Another Walk-Forward Test Chapter 16 FIGURE 16.1 Single-System Position Sizing FIGURE 16.2 Position Sizing, Multiple Systems Chapter 17 FIGURE 17.1 Documenting the Development Process FIGURE 17.2 Documenting the Development Process Chapter 18 FIGURE 18.1 Reversal Entry Example FIGURE 18.2 Euro Day Strategy Entry Example FIGURE 18.3 Walk-Forward Testing, Euro Day and Night Strategy Chapter 19 FIGURE 19.1 Monte Carlo Results, Euro Day Strategy FIGURE 19.2 Monte Carlo Results, Euro Night Strategy FIGURE 19.3 Monte Carlo Results, Both Strategies Combined FIGURE 19.4 Incubation Results—Data Distribution Comparison FIGURE 19.5 Incubation Results—Equity Curve Comparison 12 Chapter 20 FIGURE 20.1 Position-Sizing Results FIGURE 20.2 Histogram of Possible First Year Returns Chapter 21 FIGURE 21.1 Sample Walk-Forward Equity Curve Chapter 23 FIGURE 23.1 Bird’s-Eye Equity Chart FIGURE 23.2 Monthly Summary Chart FIGURE 23.3 Individual System Monthly Chart FIGURE 23.4 Superb Incubation Performance FIGURE 23.5 Most Strategies Eventually Revert to Their Mean FIGURE 23.6 Incubating Even Longer FIGURE 23.7 Daily Performance Review FIGURE 23.8 Daily Performance Review with Performance Bands FIGURE 23.9 Histogram of a Typical Real Trading System FIGURE 23.10 140-Day Daily Performance FIGURE 23.11 200-Day Daily Performance Chapter 24 FIGURE 24.1 Daily Performance, After Four Weeks of Live Trading FIGURE 24.2 Big Picture Equity Curve after Eight Weeks FIGURE 24.3 Daily Performance after Eight Weeks of Live Trading FIGURE 24.4 Big Picture Equity Curve after 12 Weeks FIGURE 24.5 Daily Performance, After 12 Weeks of Live Trading FIGURE 24.6 Big Picture Equity Curve after 12 Weeks FIGURE 24.7 Daily Performance after 15 Weeks of Live Trading 13

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