Mechanical Trading Systems
Richard Weissman introduces the reader with a process-driven approach to trading. In addition to the development of mechanical trading systems, the significance of trader psychology is discussed throughout the book. Mr. Weissman calls it the framework of “reprogramming the trader.” He provides a clear understanding behind the conceptual development of mechanical trading systems as well as demonstrates possible mistakes by system developers and ways to avoid them. His main lesson for the reader is that flexibility enables traders to succeed in all kinds of trading environments.
Dispelling Myths and Defining terms
In this chapter the author emphasizes more on mathematical technical analysis than classical technical analysis. He also explains why mathematical way of analyzing is an ideal component for mechanical trading systems than fundamental or interpretive analysis and thus claims this as an apt method for generating profits
Mathematical Technical Analysis
Introduces the two basic flavors of mathematical technical indicators which are mean aversion and moving averages. The chapter also explains how these indicators can be transformed into comprehensive trading systems through the inclusion of various risk quantification parameters such as volatility bands and percentage value of trading instrument.
Trend Following Systems
By going through this chapter one can figure out how even a simplistic of the systems can produce a respectable rate of return while enduring relatively moderate worst peak-to -valley drawdowns in equity. The reader can also understand why certain asset classes tend to trend more than others
Mean Aversion Systems
Examines why certain asset classes display a greater propensity toward mean aversion than others and includes examples of no directionally biased mean aversion systems and mean aversion systems that employ a trend following filter.
Short term Systems
One can understand what short term volatity really means by going through the concepts of swing and day trading. It helps the reader to explore what unique personality traits are needed to overcome the same.
Provides the reader a comprehensive review of major categories of trader types (trend following, mean aversion) as well as the typical time frames (long term, day trading, swing) in which they operate. Helps the reader to identify the flaws in trader psychology. Once the reader has identified their innate trading personality, a step by step transformational process via utilization of different types of mechanical trading system and psychological tools is outlined
System Development and Analysis
This chapter examines some of the benefits and limitations of mechanical trading system, optimization studies, development of trading system philosophy statements and the pros and cons of various methodologies for measuring trading system performance. It also looks at the downside to system development and how to resolve these problems: data curve fitting, parameter curve fitting, data integrity issues and slippage.
Price Risk Management
Discusses the various price risk management methods such as stop loss and volumetric price risk management .Coverage of volumetric price risk includes both Martingale and anti-Martingale position sizing techniques such as frictional position sizing and value at risk. Other techniques covered include the study of worst-back tested peak-to-valley equity draw downs, static volumetric tests, stress testing and system losses as a percentage of total equity under management. Finally the chapter examines the psychological aspects of price risk management and shows how utilization of mechanical trading systems can aid in fostering confidence during drawdowns.
Improving Rate of Return
In this chapter the author discusses how can one improve the overall rate of return by using these three methods
· Addition of various low or negatively correlated assets such as foreign exchange, crude oil and futures
· The staggering of parameter set trigger levels for the same system
· Combination of mean aversion and trend following systems within a single trading account
Discretion and System Trading
This chapter examines how a trader’s knowledge and experience can be utilized within the framework of mechanical trading system
Psychology of Mechanical Trading
Here the author relates the link between mechanical trading systems and transformational psychology, explaining in detail issues such as self worth, single-mindedness, discipline ,nonattachment to result’s of one’s actions and realizing of old emotional patterns.