Beyond Technical Analysis: How to Develop and Implement a Winning Trading System BY TUSHAR S. CHANDE
About the book
Considered a classic when it comes to technical analysis, this updated version takes into consideration the current market conditions and allows traders to create and test their trading systems. The authors argue the importance of a winning trading system at the current pace of the market and how it can guarantee winning results. More so, a personally created, developed, and tested trading system guarantees better results and performance once applied to real-time trading. This book includes techniques, principles, guidelines, and a step-by-step methodology in the development, implementation, analysis, and execution of the trading system.
Review
This book will show readers exactly how to create a winning trading system from scratch. While most finance books only discuss the methodologies in creating a trading system, this book starts from the development up to the execution. Some finance books may also only discuss techniques and trading strategies, while Beyond Technical Analysis does more than that. It brings together all the fundamentals of trading systems and technical analysis and discusses it in one lengthy, detailed book. The step-by-step methodology allows novice traders to actually learn all the processes that go beyond the surface of trading systems, and learn what makes it effective when applied to real-world trading. Overall, this book is recommended for beginning and expert traders alike. The content of the book is invaluable, and it is your money’s worth.
About the Author
TUSHAR S. CHANDE is the President of LongView Capital Management, LLC, of West Des Moines, Iowa. He is a registered Commodity Trading Advisor and has earned a Ph.D. He owns nine US patents and a renowned innovator of technical analysis.
Table of Contents
Preface
1 Developing and Implementing Trading Systems
Introduction
What’s New in This Edition
The Usual Disclaimer
What Is a Trading System?
What Is a Trading Program?
Classification of Return Generation Processes
Comparison: Discretionary versus Mechanical System Trader
Why Should You Use a Trading System?
Robust Trading Systems: TOPS COLA
What Is a “Good” Trading Program?
How Do You Implement a Trading System?
Is Systematic Trading Easy?
Who Wins? Who Loses?
Appendix to Chapter 1: A Brief Technical Analysis Primer
2 Principles of Trading System Design
Introduction
What Are Your Trading Beliefs?
Six Cardinal Rules
Rule 1: Positive Expectation
Rule 2: A Small Number of Rules
Rule 3: Robust Trading Rules
Rule 4: Trading Multiple Contracts
Rule 5: Risk Control, Money Management, and Portfolio Design
Rule 6: Fully Mechanical System
Summary
3 Foundations of System Design
Introduction
Diagnosing Market Trends
To Follow the Trend or Not?
To Optimize or Not To Optimize?
Initial Stop: Solution or Problem?
Does Your Design Control Risks?
Data! Handle With Care!
Choosing Orders for Entries and Exits
Understanding Summary of Test Results
What the Performance Summary Does Not Show
Some Avoidable Pitfalls in System Testing
A Reality Check
Appendix to Chapter 3: Design Issues—Entry and Exit Strategies
4 Developing New Trading Systems
Introduction
The Assumptions behind Trend-Following Systems
The 65sma-3cc Trend-Following System
Channel Breakout-Pullback Pattern
An ADX Burst Trend-Seeking System
A Trend-Antitrend Trading System
Gold-Bond Intermarket System
A Pattern for Bottom-Fishing
Identifying Extraordinary Opportunities
Performance Update: 65sma-3cc System
ATR-Band Breakout Model
Trading Stocks
Summary
Appendix to Chapter 4: Additional Performance Updates
5 Developing Trading System Variations
Introduction
Channel Breakout on Close with Trailing Stops
Channel Breakout on Close with Volatility Exit
Channel Breakout with 20-Tick Barrier
Channel Breakout System with Inside Volatility Barrier
Statistical Significance of Channel Breakout Variations
Two ADX Variations
The Pullback System
The Long Bomb—A Pattern-Based System
Summary
6 Equity Curve Analysis
Introduction
Measuring the “Smoothness” of the Equity Curve
Effect of Exits and Portfolio Strategies on Equity Curves
Analysis of Monthly Equity Changes
Effect of Filtering on the Equity Curve
Modeling CTA Returns
Stabilized Money Manager Rankings
Mirror, Mirror on the Wall
Normalizing Returns
Risk-Adjusted Measures of Performance
Comparison of Risk-Adjusted Performance Measures
Control Charts for Future Performance
Summary
7 Ideas for Money Management
Introduction
The Risk of Ruin
Interaction: System Design and Money Management
Projecting Drawdowns
Changing Bet Size After Winning or Losing
Depth of Drawdowns for Actual Performance Records
Estimating the Duration of Drawdowns
Estimating Future Returns
Chande Comfort Zone
Dealing with Drawdowns
“Rescaling” Volatility
A Calibration for Leverage
Return-Efficiency Benchmarks
Empty Diversification
Comparing Money Managers
Risk and Rewardi n Stocks and Mutual Funds
Summary
8 Data Scrambling
Introduction
What You Really Want To Know About Your System
Past Is Prolog: Sampling with Replacement
Data Scrambling: All the Synthetic Data You’ll Ever Need
Testing a Volatility System on Synthetic Data
Summary
9 A System for Trading
Introduction
The Problem with Testing
Paper Trading: Pros and Cons
Do You Believe in Your System?
Time Is Your Ally
No Exceptions
Full Traceability
“Guaranteed” Entry into Major Trends
Starting Up
Risk Control
Do You Have a Plan?
How Will You Monitor Compliance?
Get It Off Your Chest!
Focus on Your Trading
Applications of Sports Psychology in Trading
Trading with Your Head and Heart
Summary
Appendix to Chapter 9: Creating an Automated Diary of Trading Emotions
Selected Bibliography
Index
