Building Reliable Trading Systems: Tradable Strategies That Perform as They Backtest and Meet Your Risk-Reward Goals
$92.03
| Author(s) | |
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| Format |
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| Pages |
290 |
| Published Date |
2013 |
Building Reliable Trading Systems shows you how to build a tradeable strategy. A tradeable strategy is one that fits your own risk/reward goals, and one that trades in real‐time as well as it performs in the development back‐test. It is not easy to develop a tradeable strategy because there are serious pitfalls. Most of us are greedy and want to trade something that has a large return.
We rationalize that we can accept a lot of risk in the form of draw‐down to achieve the large return, but in reality few traders can trade through a 20 percent draw‐down before abandoning the strategy. To help you form realistic risk/reward goals, the first chapter shows the real‐time performance of the best traders in the world over a recent five‐year period. Based on that chapter, I urge you to write down the system characteristics that would be tradeable for you. Address risk first in the form of max draw‐down, average annual max draw‐down, and longest time between equity highs. So the first pitfall is greed. It manifests itself in every strategy development step. You will be inclined to accept a system rule that increases profitability, even though it increases risk at a higher rate. But an even greater pitfall is the danger of curve‐fitting.
Contents:
- What Is a “Tradeable Strategy?”
- Developing a Strategy So it Trades Like it Back-Tests
- Find the Path of Least Resistance in the Market You Want to Trade
- Trading System Elements: Entries
- Trading System Elements: Exits
- Trading System Elements: Filters
- Why You Should Include Money Management Feedback in Your System Development
- Bar-Scoring: A New Trading Approach
- Avoid Being Swayed by the “Well-Chosen Example”
- Trading Lore
- Introduction to Money Management
- Traditional Money Management Techniques for Small Accounts: Commodities
- Traditional Money Management Techniques for Small Accounts: Stock Strategy
- Traditional Money Management Techniques for Large Accounts: Commodities
- Traditional Money Management Techniques for Large Accounts: Stocks
- Trading the Stock and Commodity Strategies Together
Building Reliable Trading Systems: Tradable Strategies That Perform as They Backtest and Meet Your Risk-Reward Goals By Keith Fitschen pdf
10 reviews for Building Reliable Trading Systems: Tradable Strategies That Perform as They Backtest and Meet Your Risk-Reward Goals
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Karina Hartman (verified owner) –
I have read many systematic trading books but I recommend this one above all of them. The author shows absolutely mind blowing equity curves with strategies so simple, and hundreds or thousands of trades per strategy, that overfitting seems very very unlikely. Those equity curves look better than in any other book I have ever seen. If you aren’t satisfied with this book i don’t know what on earth can satisfy you.
Addyson Schwartz (verified owner) –
A treasure cove of insights, I am actually surprised Mr. Fitschen shared so much of his good research ideas and processes for just the cost of this book. His real-time performance ranking in Futures Truth, sets him apart from 99.99% of the pretenders
that the publishing investment business and trading systems marketers are inundated with. You are sure to improve your backtesting processes with this book, if you utilize primarily technical analysis tools. As a purchaser of many books, I would like to see Sacred Traders raise the bar on disclosures for the reviewers, such as I am about to do – I don’t know the author, paid for the book myself, and receive nothing for writing this review, and have been in the investment business for over 30 years.
Jessica Martinez (verified owner) –
Good trading book on system development and actual trading system execution. This book focuses on entries, exits, and the path of least resistance. It covers the vital element of risk management in a trading system for management of draw downs and the removal of the risk of ruin. Great chapter on not falling into the trap of the perfect example trades. It shows how some actual trading systems perform in back testing and implementation and the dangers of curve fitting. Good basic book for beginning traders on system development and execution.
Duke Nguyen (verified owner) –
This is the most insightful book I have read on trading for some time, and it should be required reading to anyone wishing to improve their trading results. It covers important topics such as how to develop your own trading system, ensuring that the signals are statistically valid, key differences between strategies for stocks and commodities and the importance of money management differentiated between small and large accounts – of vital importance but seldom talked about.
You must have some familiarity with trading systems in order to be able to effectively progress through the book, but the investment is worth it. In the end this is what trading is all about: finding an angle that can give you an edge and tailor the strategy to your risk management profile. This book is not about giving you some magic indicator or approach, but how you can develop and grow consistently profitable as a trader.
Luke Dorsey (verified owner) –
First of all I must give a Little warning: This is not an easy read.
But if you are ok with that point, you really need this book in your Trading book arsenal.
The author slowly and thouroughly guides the reader through all aspects of creating a Trading system.
I’ve been in the Trading business many years and I’ve been doing a lot of the same Work as described in the book.
I just wish I had gotten this book 10 years ago. It really collects nearly all neccesary topics.
Of the important topics in this book I can mention:
– Evaluating entry and exit strategies
– adding filters
– Using Money management
– Controlling risk
– Creating a robust portfolio of different systems
– And much much more
The book will probably need more than one reading, but believe me when I’m saying that I don’t mind that at all.
This book has worked its way into the Top-10 on my investment-book-shelf
Baker Hardy (verified owner) –
I learnt of the author in 2002, when I was researching algorithmic trading systems to buy. One of my criteria for choosing a system is that it needs to be traded by the vendor himself with a reasonably large account. Keith Fitschen was one of the few who could prove that he traded the systems he sold by sending across copies of his broker statements. I still trade a version of his trend-following system today, and it has done good for me overall through these years despite fairly sharp drawdowns along the way.
This book, the author’s first, doesn’t claim to be the holy grail of all trading books nor to be the end-all authority on the right way to conduct back-test & look-forward simulation. This is a book where a vendor (& trader) I trust shares his idea development process, and a handful of his trade-able systems with me. I’m not trading these until I research enough, and modify them to fit my personality and my available trading universe here in Singapore. I will dish out US$46 bucks anytime for this and other books (authored by traders) that could do the same.
Nova Johnson (verified owner) –
This is a well thought out book that goes through the many steps in developing mechanical systems for trading equities and commodities, and discusses the reasons for each step and some specifics. It does present some finished systems. However this book is directed at people who want to develop their own systems to fit their own needs and trading psychology. The book is not really designed to show finished systems that you will use, and you should not buy the book expecting this. You are going to need to do your own work, and if you want to do this then this book will be a great help to you. The book comes with a CD which I confess I haven’t used and can’t review.
Zoya Atkinson (verified owner) –
This is one of the best trading books I have encountered yet. Many different types of strategies are employed on both stocks and commodities. For each strategy there are back-tests in the form of equity graphs, and the author diligently explains the logic behind each strategy.
Data is used to show that stocks and commodities trade much differently. Research in the book shows that stocks are counter-trending, meaning that when a stock experiences a decrease in price (short term) it is likely to rebound. Whereas commodities are trend following and commodities that go down tend to keep going down for awhile.
There is analysis of both technical and fundamental factors. The author is highly knowledgeable about technical indicators and shows which ones perform the best over large samples over stocks for many years.
Practicality is emphasized throughout the book. The author uses a trading position size of $5,000 for many examples with the logic being you need to invest at least this much so commission costs do not eat away your profits.
One interesting section was about Monte Carlo tests and how the author believes they do not work well. In my own trading simulations I had been using Monte Carlo tests, which are recommended by many other authors. The analysis from these tests always left me wondering if I was missing some aspect of how to use them. Fitschen explained step by step why Monte Carlo tests are over-rated, and the explanation made intuitive sense.
A customized trading system was introduced in chapter 8 called “Bar-Scoring”. The basic idea is to rank each potential trade on a number of factors and see which one gets the highest score. This was a well explained system for ranking which trades will do the best in real time.
Many trading gotchas are presented as to what techniques to avoid. There’s even a chapter where the author goes through common wisdom in the trading world and destructs the arguments one by one.
I found the cost of the book to be high, but I am really glad I got this book as it was worth every penny. If you have interest in building a stock or commodity trading system this is definitely the one book to get.
Edwin Villalobos (verified owner) –
This book provides all you could possibly need to understand what goes into system development. The author provides a solid framework to use through the development process and provides a tremendous amount of supporting data to show why those decisions were made. Additionally he opens up new areas to investigate for even more system development ideas. Bar-scoring is where I will be spending most of my future development time due to the tremendous potential.
You get two tradable systems with the book and he even provides the daily trades for those systems through his website if you don’t have the means of generating them yourself.
The author clearly put a tremendous amount of time and effort into this book and I’m thankful that he decided to share his knowledge and experience with the rest of us.
The other reviews accurately point out the aspects of the book so I will not rehash them here. However what I will say is the author is actually accessible via his website and he answers his phone himself.
In my opinion when you have someone with the experience and success of the author it would simply be insane not to try to tap into that experience.
I’ve had the pleasure of talking to a few people that have developed systems for many years including the author of this book. The small nuggets of information they pass on is worth far more than the price of a book and this book is full of those nuggets. For instance, just this last week I had a conversation with the author (yes he really is accessible) and he made a comment about the markets in general which is also in the book. Upon investigating what he said I immediately trimmed my maximum draw down by 6.4% on my systems with an insignificant reduction in profits. This lead to a significant improvement in the gain to pain ratio and a potential saving of over $32,000 in drawdown based on my account size.
Do yourself a favor and buy the book and read it multiple times. I’ll be referencing this book for years to come.
A few words of caution though. All systems fail eventually. It is just a matter of time and changing market conditions. System development is a never ending process and this book provides a fantastic methodology for that never ending process. To combat the eventual failures use multiple systems that use different methodologies and are preferably uncorrelated. This approach has already saved me once.
Noah Lam (verified owner) –
A very talented trader friend recommended this book to me, and after reading it, I can see why he was so impressed. This book was written by someone who clearly understands quantitative development methods, a contention supported by Fitschen’s appearance on Futures Truth’s “Top 10 All Time Systems” list.
In my view, the most unique and useful aspect of the book is how the author walks the reader through the steps he uses to create and evaluate a trading system. Fitschen gives the reader numerous tables and graphs to show how he looks at the results at each step. You simply don’t find this in many books. For example, I appreciate the quantitative nature of Larry Connors’ books, but Larry provides just the end results – a system with a clear set of rules. The details behind how Larry derived those rules is a “black box.”
All trading system development work involves iteration. At each step, you think to yourself, “What would happen if I added this or tweaked that?” Fitschen guides the reader through those iterations, opening the “black box” to show his thinking about whether a given tweak is kept or discarded. As he guides the reader through the iterations, he gives us a clear metric to help make decisions about each rule. I can’t overstate how useful it is to have a proven trading system developer walk you through his thinking process. If you’ll forgive the metaphor, Larry Connors’ work gives his readers a fish for them to figure out how to cook; Fitchen shows his readers how to catch, descale, and cook the best fish.
I also appreciated Fitschen tackling curve-fitting using a method he calls BRAC, and addressing whether to include money management during trading system development (i.e., as opposed to evaluating position sizing only after the system has been more fully developed). While I’m not sure he sold me completely for reasons not worth going into, his commentary and methods are worthy of consideration and certainly got me to challenge some long-held beliefs.
The value of the book in its current form deserves 5 stars. That said, in his follow-up work (I’m hopeful… this guy has useful information to share) I’d appreciate him taking his readers through additional, often complex, quantitative development topics like:
1. Evaluating the longevity of a system from the outset, and whether he has any rules of thumb for it (e.g., evaluating the potential for longevity based on the number of system rules or other factors).
2. How he evaluates market selection, and whether he sees excluding certain markets based on historical performance as a significant risk.
3. How he balances fewer trades against his “bread and butter” pain-to-gain ratio when evaluating system rules (e.g., a modest increase in pain-to-gain that reduces the number of trading opportunities creates a some interesting tradeoffs).