mechanical trading systems

[...]... successful mechanical trading system, it clearly illustrates what technicians mean when they speak of objective, mathematical indicators It is this objectivity of trading signals derived from mathematical technical analysis that makes mathematical technical analysis the indispensable foundation of the vast majority of mechanical trading systems MECHANICAL TRADING SYSTEMS: A DEFINITION Mechanical trading systems. .. 177 Mechanics of Trading System Diversification 180 Psychology of Trading System Diversification 182 CHAPTER 10 Discretion and Systems Trading: Discretion within a Mechanical Framework 185 Discretion and Paradigm Shifts 185 Discretion, Volatility, and Price Shocks 186 Mechanical Discretion 187 Pros and Cons of “True” Discretion 188 CHAPTER 11 Psychology of Mechanical Trading: Trading Systems and Transformational... is that of employing mechanical trading systems based on mathematical technical analysis Such mechanical trading systems allow the development of comprehensive, detailed trading plans that include rules of entry, exit, and price risk management More important, they enable the backtesting and forward testing of a particular strategy’s results prior to xiii xiv MECHANICAL TRADING SYSTEMS the commitment... Time Frames, Trading Systems, and Personality Traits 106 CHAPTER 7 System Development and Analysis: Benefits and Pitfalls 115 System Development Issues: An Overview 115 Benefits of Mechanical Trading Systems 116 Pitfalls of Mechanical Trading Systems 116 Optimization Process 122 System Development Process 148 Data Analysis Process 151 Trading System Philosophy Statements 159 Measuring Trading System... Analysis and Mechanical Trading Systems 1 Dispelling the Myths: The Inefficient Market and the Hard Road to Profits 1 Technical Analysis: A Definition 3 Mechanical Trading Systems: A Definition 5 Defining the Time frames 6 Technical Analysis: Why it Works 6 Types of Technical Indicators: Trend-Following and Mean Reversion 10 CHAPTER 2 Mathematical Technical Analysis: A Building Block for Mechanical Trading. .. necessary to succeed as a trend-following trader xvi MECHANICAL TRADING SYSTEMS Chapter 4 looks at simple intermediate-term mean reversion trading systems It examines why certain asset classes display a greater propensity toward mean reversion than others and includes examples of nondirectionally biased mean reversion systems and mean reversion systems that employ a trend-following filter The chapter... Although the irrationality of markets is why technical analysis works, it 1 2 MECHANICAL TRADING SYSTEMS is also the greatest danger in the execution of a mechanical trading system Traders must have the discipline to continuously behave in an unnatural, uncomfortable manner to consistently generate profits This is why mechanical trading is difficult Discipline and money management means acting like a machine... aspects to all trading, even mechanical trading The most obvious creative aspect of mechanical trading is the process of system development and refinement itself In addition, in later chapters we will examine discretion over position sizing and how this lends itself to creativity Thus, the greatest obstacle to successful trading as a technician is not the ability to discover a successful trading strategy;... Management for Trading Accounts 165 Two Schools of Price Risk Management 165 Stop-Loss Price Risk Management 166 Volumetric Price Risk Management: Martingale and Anti-Martingale Strategies Value at Risk: An Overview 168 169 Benefits of Value at Risk 170 Pitfalls of Value at Risk 171 Stress Testing 173 xii MECHANICAL TRADING SYSTEMS Psychology of Price Risk Management 173 Mechanical Trading Systems, Drawdowns,... ANALYSIS: WHY IT WORKS As shown in later chapters, technical analysis can be used to develop two different types of mechanical trading systems: price-driven systems or indicator-driven systems (along with a combination of the two) Both types of trigger events can be used to produce successful trading systems because they capitalize on recurring psychological conditions in the market Psychological Significance . that of employing mechanical trading systems based on mathe- matical technical analysis. Such mechanical trading systems allow the de- velopment of comprehensive, detailed trading plans that. 91 Swing Trading with 2-Hour Bars 92 Mean Reversion Systems Using 60-Minute Bars 95 Nondirectionally Biased Mean Reversion Systems 96 Mean Reversion Systems Using 30-Minute Bars 98 x MECHANICAL TRADING. Adherence to Mechanical Trading Systems 195 Transformational Process: In Life and the Markets 196 Notes 199 References and Further Reading 205 Index 207 xii MECHANICAL TRADING SYSTEMS 00Weissman_i_xxii