Develop your own trading system with practical guidance and expert advice

In Building 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 Systems teaches 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 Systems provides expert guidance and practical advice.

Table of Contents

PART I A TRADER’S JOURNEY

CHAPTER 1 The Birth of a Trader

CHAPTER 2 Enough Is Enough

CHAPTER 3 World Cup Championship of Futures Trading® Triumph

CHAPTER 4 Making the Leap—Transitioning to Full Time

PART II YOUR TRADING SYSTEM

CHAPTER 5 Testing and Evaluating a Trading System

CHAPTER 6 Preliminary Analysis

CHAPTER 7 Detailed Analysis

CHAPTER 8 Designing and Developing Systems

PART III DEVELOPING A STRATEGY

CHAPTER 9 Strategy Development—Goals and Objectives

CHAPTER 10 Trading Idea

CHAPTER 11 Let’s Talk about Data

CHAPTER 12 Limited Testing

CHAPTER 13 In-Depth Testing/Walk-Forward Analysis

CHAPTER 14 Monte Carlo Analysis and Incubation

CHAPTER 15 Diversification

CHAPTER 16 Position Sizing and Money Management

CHAPTER 17 Documenting the Process

PART IV CREATING A SYSTEM

CHAPTER 18 Goals, Initial and Walk-Forward Testing

CHAPTER 19 Monte Carlo Testing and Incubation

PART V CONSIDERATIONS BEFORE GOING LIVE

CHAPTER 20 Account and Position Sizing

CHAPTER 21 Trading Psychology

CHAPTER 22 Other Considerations before Going Live

PART VI MONITORING A LIVE STRATEGY

CHAPTER 23 The Ins and Outs of Monitoring a Live Strategy

CHAPTER 24 Real Time

PART VII CAUTIONARY TALES

CHAPTER 25 Delusions of Grandeur

Conclusion

APPENDIX A Monkey Trading Example, TradeStation Easy Language Code

APPENDIX B Euro Night Strategy, TradeStation Easy Language Format

APPENDIX C Euro Day Strategy, TradeStation Easy Language Format

About the Author

Kevin J. Davey is a professional trader and a top-performing systems developer. He generated triple-digit annual returns of 148 percent, 107 percent, and 112 percent in three consecutive World Cup Championships of Futures Trading® using algorithmic trading systems. His web site, www.kjtradingsystems.com, provides trading systems, trading signals, and mentoring. He writes extensively in industry publications such as Futures Magazine and Active Trader and was featured as a "Market Master" in the book The Universal Principles of Successful Trading by Brent Penfold (Wiley, 2010). An aerospace engineer and MBA by background, Davey has been an independent trader for over 20 years. Davey continues to trade full time and develop algorithmic trading strategies.