Selected Bibliography 253 Index 255 About the Disk 261

Preface

This is a book about designing, testing, and implementing trading sys­tems for the futures and equities markets. The book begins by develop­ing trading systems and ends by defining a system for trading. It focuses exclusively on trading systems. Hence, I have assumed that the reader has at least a working knowledge of technical analysis and is familiar with software for developing technical trading systems

The book is broadly divided into two parts. The first half deals with development and testing—how the system worked on past data— and discusses basic rules, key issues, and many new systems. The second half explores how the system might do in the future, with a focus on eq­uity curves, risk control, and money management. A key contribution is a new method called "data scrambling," which allows unlimited amounts of synthetic data to be generated for true out-of-sample testing. The last chapter brings all of the material together by offering solutions to prac­tical problems encountered in implementing a trading system.

This book goes beyond technical analysis—it bridges the gap be­tween analysis and trading. It provides a comprehensive treatment of trading systems, and offers a stimulating mix of new ideas, timeless prin­ciples, and practical guidelines to help you develop trading systems that work.

Acknowledgments

I thank Nelson F. Freeburg for twice reading this manuscript. Nelson's meticulous attention to detail, outstanding grasp of the subject, sharp eye for inconsistencies, and love of the language have helped to improve this book immeasurably. Nelson edits a monthly newsletter, Formula Research, which is "must-reading" for serious students of the financial markets.

A good editor is essential to guide a book to completion. I want to thank Pamela Van Giessen of John Wiley & Sons for being the accessi­ble, cheerful, and resourceful editor every author loves.

Beyond Technical Analysis

Chapter

Developing and Implementing Trading Systems

Nothing is easier than developing a trading system by the •usual process of trial and terror.