September 25, 2016

What I see most often are stock trading strategies that operate on the premise of finding some kind of anomaly or pattern that the developer hopes will repeat in the future. He tries to select the best methods he has to do the job. But, it still is limiting in the sense that one is not looking to increase the number of trades but simply to accept the strategy's generated number of trades. As if looking only at one way to increase end results. It's okay, but one should want more and could do more.

The purpose of designing a trading strategy is to have it go live once it has passed all the tests. Not just that the program is debugged, does not crash or does not run wild. There are other tests to be conducted before releasing a trading strategy. Still, the ultimate purpose is to have it run live, to let it trade as programmed.

To make you the profits anticipated, according to your backtests, a trading strategy should behave about the same as it did on past data. You know that your trading strategy will be faced with totally unseen price data and will react as instructed.

However, if the program has flaws in its design, non-validated premises, or even a misunderstanding of the game at hand, a live program might not do what its author thought it should do and not respond as expected but would nonetheless respond as programmed.

Whatever, in the end, it will be your program. So, why not make it a good one?

Anything you put in a strategy that does not resemble reality will find its way back to haunt you and, most probably, hurt you financially. You should not be surprised if reality has its own path and will continue its course in spite of what you think it should be or should do.

Double-check those trading procedures, and understand what they do, their side effects, and their interrelationships with other procedures within your program. How will these trading procedures evolve over time? They might be fixed; they are coded software routines. But their impact will change as the portfolio grows. So your trading methods and procedures should adapt there too.

The money your program will make is not just a fluke. You will have worked for it. You will have earned it, every penny of it.

The following article is part of my research notes leading to transforming some of my preferred trading strategy designs to the minute level. My current strategies are for EOD (end-of-day) trading rules. This will be a major transformation, but also, what I see as an opportunity to increase overall performance.

I anticipate being able to reduce the average holding time per trade. It will give the ability to trade more. And in a payoff matrix, as was shown in this series of articles, it counts. There are mathematical formulas; however, the context explains what they stand for.

There is one statement in the following file that I find important. See what it implies. It needed a context to put it in perspective.


HTML file: Trade Detection


Related articles part of this series, as they were written:

The Payoff Matrix 
The Game Inside 
Strategy Design Defects
Strategy Enhancers

To give you an idea of what is coming, see also the series:

A Simple Stock Trading StrategyPart IPart II, and Part III.

Created... September 25, 2016,    © Guy R. Fleury. All rights reserved.