Average Reviews:
(More customer reviews)The authors cover the ground of "Build a Trading Program" quite effectively. They have presented results using systems built around traditional technical indicators and their own "standard exit" method. These they use to show how to evaluate systems. This brief summary understates considerably the material presented on entries.
Differing entry techniques (limit, stop & market)are examined in the context of each "system." The reader is thus exposed to both the methodology of statistical evaluation and to "how it feels" to use this technique or that.
The authors actually start the book with an introduction to data types, availability and time frame; the bare-bones of needed statistical material; simulators (programs to simulate trading); and, optimizers and optimizing. I scanned the material, due to my own familiarity with it. It seems like good background. One point I've not seen elsewhere is the suggestion to optimize for high Student-t scores, an excellent idea.
Exits and exit techniques are dealt with, although less voluminously than entry techniques. One reason for that is the difference in amount written on the two. Everyone who wants to sell you a system, be it a book or a seminar, will emphasize entry technique. Very little has been written on exits, which are a more difficult sell. Katz & McCormick have presented the basic categories of exits. While "basic categories" doesn't sound like much, it is more than I can recall appearing elsewhere in print. These categories are the building blocks for the second most important part of a system: exits. (More important is money management.) Here, as throughout the book, C+ code is included, allowing one to implement one's own approaches.
Another section, also with code, is use of genetic algorithms in system design. This is one of the best sections on GA's in trading that I've seen. It is not exhaustive (thank heavens) but will get you started without forcing a reading of Goldberg's text on GA's. Another departure from the norm is a short presentation of using GA's to optimize for the elements of the system, not for the actual output, a superior idea.
As the authors point out, exits are far more important than entry. A test system I wrote recently entered almost randomly after it had determined volatility was sufficiently high. Although not sophisticated, the exits were other than random. Although less than 20% accurate, it produced very substantial profits. Actual implementation is a bit trickier; real markets don't always provide the smooth entry and exit of systems testing. Be that as it may, the essential point remains: exit and money management are where the profits are. Entries are for seminar junkies and would be traders.
If trading is what you want to do, and computer-driven systems are what you will use, this is a book that you should read. It is the best I've seen (and I've seen a few). The other pieces to the trading puzzle are psychology (Ruth Roosevelt) and money management (Ralph Vince - not perfect, but a necessary read).
Click Here to see more reviews about: The Encyclopedia of Trading Strategies (McGraw-Hill Trader's Edge Series)
The Encyclopedia of Trading Strategies is for traders who want to take the next step to consistently profitable trading. The authors--themselves seasoned veterans of the futures trading arena--pinpoint the trading methods and strategies that have been shown to produce market-beating returns. Their rigorous and systematic backtesting of each method, using the same sets of markets and analytic techniques, provides a scientific, system-based approach to system development...to help you assemble the trading system that will put you on the road to becoming a more consistently profitable trader.
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