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Beyond Technical Analysis: How to Develop and Implement a Winning Trading System, 2nd Edition

Book Description

A technical analysis classic, newly updated to help traders develop and forward-test a high-performance trading system for today's markets

In trading, a winning system is everything. While it is theoretically possible to buy a "canned" trading system, most experts agree that the best system is proprietary to each trader--developed, implemented, and tested by the individual to suit his or her exact requirements. A stimulating mix of cutting-edge techniques, timeless principles, and practical guidelines, this updated edition of a technical analysis classic offers traders a comprehensive methodology to develop and implement your own trading system, bridging the gap between analysis and execution.

Tushar Chande (Pittsburgh, PA) holds nine U.S. patents for creative solutions to flexible manufacturing problems using high-power lasers and optical fibers. A contributing editor to Technical Analysis of Stocks & Commodities magazine, he has been a registered Commodity Trading Advisor and is the principal author of The New Technical Trader (0-471-59780-5) (Wiley).

Table of Contents

  1. Cover Page
  2. Title Page
  3. Copyright
  4. Dedication
  5. Contents
  6. Preface
  7. Chapter 1: Developing and Implementing Trading Systems
    1. Introduction
    2. What’s New in This Edition
    3. The Usual Disclaimer
    4. What Is a Trading System?
    5. What Is a Trading Program?
    6. Classification of Return Generation Processes
    7. Comparison: Discretionary versus Mechanical System Trader
    8. Why Should You Use a Trading System?
    9. Robust Trading Systems: TOPS COLA
    10. What Is a “Good” Trading Program?
    11. How Do You Implement a Trading System?
    12. Is Systematic Trading Easy?
    13. Who Wins? Who Loses?
    14. Appendix to Chapter 1 : A Brief Technical Analysis Primer
  8. Chapter 2: Principles of Trading System Design
    1. Introduction
    2. What Are Your Trading Beliefs?
    3. Six Cardinal Rules
    4. Rule 1: Positive Expectation
    5. Rule 2: A Small Number of Rules
    6. Rule 3: Robust Trading Rules
    7. Rule 4: Trading Multiple Contracts
    8. Rule 5: Risk Control, Money Management, and Portfolio Design
    9. Rule 6: Fully Mechanical System
    10. Summary
  9. Chapter 3: Foundations of System Design
    1. Introduction
    2. Diagnosing Market Trends
    3. To Follow the Trend or Not?
    4. To Optimize or Not To Optimize?
    5. Initial Stop: Solution or Problem?
    6. Does Your Design Control Risks?
    7. Data! Handle with Care!
    8. Choosing Orders for Entries and Exits
    9. Understanding Summary of Test Results
    10. What the Performance Summary Does Not Show
    11. Some Avoidable Pitfalls in System Testing
    12. A Reality Check
    13. Appendix to Chapter 3 : Design Issues—Entry and Exit Strategies
  10. Chapter 4: Developing New Trading Systems
    1. Introduction
    2. The Assumptions behind Trend-Following Systems
    3. The 65sma-3cc Trend-Following System
    4. Channel Breakout–Pullback Pattern
    5. An ADX Burst Trend-Seeking System
    6. Gold-Bond lntermarket System
    7. A Pattern for Bottom-Fishing
    8. Identifying Extraordinary Opportunities
    9. Performance Update: 65sma-3cc System
    10. ATR-Band Breakout Model
    11. Trading Stocks
    12. Summary
    13. Appendix to Chapter 4 : Additional Performance Updates
  11. Chapter 5: Developing Trading System Variations
    1. Introduction
    2. Channel Breakout on Close with Trailing Stops
    3. Channel Breakout on Close with Volatility Exit
    4. Channel Breakout with 20-Tick Barrier
    5. Channel Breakout System with Inside Volatility Barrier
    6. Two ADX Variations
    7. The Pullback System
    8. The Long Bomb—A Pattern-Based System
    9. Summary
  12. Chapter 6: Equity Curve Analysis
    1. Introduction
    2. Measuring the “Smoothness” of the Equity Curve
    3. Effect of Exits and Portfolio Strategies on Equity Curves
    4. Analysis of Monthly Equity Changes
    5. Effect of Filtering on the Equity Curve
    6. Modeling CTA Returns
    7. Stabilized Money Manager Rankings
    8. Mirror, Mirror on the Wall…
    9. Normalizing Returns
    10. Risk-Adjusted Measures of Performance
    11. Comparison of Risk-Adjusted Performance Measures
    12. Control Charts for Future Performance
    13. Summary
  13. Chapter 7: Ideas for Money Management
    1. Introduction
    2. The Risk of Ruin
    3. Interaction: System Design and Money Management
    4. Projecting Drawdowns
    5. Changing Bet Size After Winning or Losing
    6. Depth of Drawdowns for Actual Performance Records
    7. Estimating the Duration of Drawdowns
    8. Estimating Future Returns
    9. Chande Comfort Zone
    10. Dealing with Drawdowns
    11. ”Rescaling” Volatility
    12. A Calibration for Leverage
    13. Return-Efficiency Benchmarks
    14. Empty Diversification
    15. Risk and Reward in Stocks and Mutual Funds
    16. Summary
  14. Chapter 8: Data Scrambling
    1. Introduction
    2. What You Really Want To Know about Your System
    3. Past Is Prolog: Sampling with Replacement
    4. Data Scrambling: All the Synthetic Data You’ll Ever Need
    5. Testing a Volatility System on Synthetic Data
    6. Summary
  15. Chapter 9: A System for Trading
    1. Introduction
    2. The Problem with Testing
    3. Paper Trading: Pros and Cons
    4. Do You Believe in Your System?
    5. Time Is Your Ally
    6. No Exceptions
    7. Full Traceability
    8. ”Guaranteed” Entry into Major Trends
    9. Starting Up
    10. Risk Control
    11. Do You Have a Plan?
    12. How Will You Monitor Compliance?
    13. Get It Off Your Chest!
    14. Focus on Your Trading
    15. Applications of Sports Psychology in Trading
    16. Trading with Your Head and Heart
    17. Summary
    18. Appendix to Chapter 9 : Creating an Automated Diary of Trading Emotions
  16. Selected Bibliography
  17. Index