Quantitative Trading Systems

I have written a paper describing an original approach to evaluating the health of a trading system, and an original approach to determining position size based on system health.
The technique described:
• Is of practical significance to practitioners of active investing.
• Produces both faster account growth and lower risk when compared with a passive buy-and-hold strategy.
• Is illustrated using a fully disclosed trading system.

It can be found on the Resources page, in the Books category:
or use this link

Comments are welcome.

A new article, Managing Subjectivity with Objective Functions, was posted today. It gives some background about objective functions and discusses two applications:

• Ranking alternative systems (during system development).
• Deciding the size of the next position (during analysis of system performance).

There is a new article in which I explain my thoughts on why traders stop trading systems. Among the points I make are:

• It is important to monitor system health.
• Drawdown is probably the most common reason traders stop trading a system.
• Position size must be adjusted as system performance changes.
• The correct position size of a system that is broken is zero.

There is a new article that discusses measurements of system quality, and risk assessment and profit potential as related to system quality.

 
I have done an analysis of a mean reversion trading system that is based on the 4 period RSI. You can read about it on the Mean Reversion RSI static page.

The analysis includes the typical equity growth and drawdown charts, and trading statistics. More importantly, it illustrates the technique that I teach and write about in Modeling Trading System Performance to:

• Estimate profit potential.
• Estimate risk through drawdown.
• Determine position size based on the distribution of trades and taking personal tolerance for risk into account.
• Estimate the distribution of account growth.
• Estimate the distribution of drawdown.