Why to trade more than one system?
Does your system perform as expected?
Knowing if your system is performing as expected is one of the most crucial question for a systematic trader. This question is mostly raised in times when you “feel” that your returns aren’t in line with what you had expected. However, I strongly think that a reality check should be part of a periodic system check-up. How or how often to evaluate your systems performance depends on the type of system and how frequently it trades, e.g. a system that trades infrequently (a few times a year only) might need a longer look back period than a system that trades a couple of times a day. Analyzing your systems past performance needs to be a simple and effortless process. So it has to be automated and realistic. If one needs to spend a lot of time preparing the data, he or she is less likely to do it on a recurring basis. That’s just my opinion. So for this post I want to focus on how I analyze my systems past performance.
Book review: Modeling Trading System Performance
Recently I had the opportunity to read the book “Modeling Trading System Performance” from Howard B. Bandy.
The book is covering topics such as Monte Carlo Simulation, Position Sizing, Risk Management and Statistics. The tag line of the book:
If you have been in the dark about moving from developing trading systems to the business of trading, this book will illuminate the process.
Rotational Trading: how to reduce trades and improve returns
With this post I want to share some research I’ve done in the area of rotational trading (RT). In RT systems stocks or ETFs are ranked according to one or more properties. You ride the best stocks as long as they are among the best stocks, then you change horses and go again. So far so good. Unfortunately some times you change stocks just to see that the stock you sold is doing better again and raising in your ranking. As we know the market has a certain amount of noise that can’t be predicted or modeled, hence stocks will raise or fall just because of that noise. This represent two challenges: trading cost and opportunity cost. Let me present you some ways how to reduce the impact of that volatility in ranking.
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