Modeling Trading System Performance
Deciding the size of the position for the next trade is a two question process:
1. Is the system working or is it broken?
2. What is the position size that maximizes the probability of meeting my account growth goal while minimizing the probability of suffering a serious loss?
This book discusses techniques to model and analyze trading system performance.
Modeling Trading System Performance is a sequel to my earlier book, Quantitative Trading Systems. The focus of this book is on the practicalities of trading as a business. Key topics include:
- Analysis of trading results, such as expectancy, trading frequency, holding period, win/loss ratio
- Use of Monte Carlo simulation
- Estimation of profit potential and drawdown
- How to apply position sizing
- How to tell whether the system is working or broken
- Statistics for traders
Most of the material in Modeling Trading System Performance is new, both in terms of books published by Blue Owl Press and in terms of other published materials.
There is less than 5% overlap between Modeling Trading System Performance and Quantitative Trading Systems.
Several trading systems are analyzed in detail. Everything is completely explained, including use of free or low cost tools that will enable you to perform similar analysis of your own trading systems. Other than Microsoft Excel, the book is platform independent. It is equally applicable to people who develop using TradeStation, MetaStock, AmiBroker, Wealth-Lab, or any other trading system development platform.
Several common wisdom, traditional method, and sacred cow ideas and recommendations are examined in detail, with results showing that many of them are poor advice. All of the tools used are fully explained so you can repeat the tests using your own systems and data.
These links each open a pdf file related to the book.
- Table of Contents
- Introduction (Chapter 1)
- Trading as a Business (Chapter 2)
- Trading Systems (Chapter 3)
Click this link to download the simulation add-in that produces the simulation tables. It is a 50 KB Excel .xla file
The book gives detailed instructions for installation and use of this add-in, and many examples of its use.
Thanks to one of our readers who pointed out that users of Excel 2013 and later need to perform an extra step when loading the add-in. This Microsoft page explains:
- Command bars of Excel add-ins are not displayed or removed automatically in Excel 2013 when you load or unload the add-ins
The issue is:
When you load an Excel add-in (.xlam) or an Excel 97-2003 add-in (.xla), the command bars of the add-in are not displayed automatically. Instead, you must close all workbooks and then restart Excel to display the command bars.
The workaround is:
Close all open workbooks, and then restart Excel.
You can learn more about the book, read additional pages, read reviews, and purchase a copy — all at Amazon.