On the development of security investment rules
The investment market moves continuously. Opportunities for profit appear regularly. If you're spending time developing a trading system, you are missing these prospects. What is your development time costing you?
Modern techniques such as the algorithms employed in Genetic System Search for Technical Analysis shorten the path to active trading. Take advantage of the tools available. You don't even have to use the fastest machine with four monitors arrayed in front of you. Leverage the power of the computer.
Nothing crystallizes the mind like money at risk. Once you are competent with the mechanics of trading and your software tools, the continuation of artificial paper trading may even be detrimental. Put real money on the line even if it's just a token amount. The unique mental processes involved in a real trade will strengthen your abilities.
Investing is primarily a solitary enterprise, even if you are part of a trading group or in a corporate environment. In an effort to stay on an even keel and to gain exposure to novel ideas, participate in the online community. Monitor investment forums and blogs. Keep a log or diary of your thoughts and trading activities.
Each opportunity for financial gain bypasses you if you do not act on your trading signals. The market doesn't know you exist and will not wait for you. If you act on each trading signal without fail, it will be easier to eliminate the human tendency of procrastination.
It's important to construct a set of investment rules that generate signals in which you are confident. Imagine that you're using a system in live trading and the last five trades have been losers. Your trading capital is depleted and your confidence shaken. Are you going to make the next trade without question?
Consider the case of a huge drawdown during an open trade. Your profit has turned into a loss. Will you stay with the current rules or jump ship? Can you hold on for a vague promise of a profitable outcome in a few days or weeks? That's unlikely.
If you use the MetaStock Enhanced System Tester (EST) in the development of your trading system, it is important to verify the results. Some configurations, for instance, may result in simulated trades that you would never execute. The EST may both buy and sell a stock at the same time. That results in two additional brokerage fees with no possibility of profit.
The pitfalls in the use of the Enhanced System Tester have been documented and it is wise to be familiar with the available cautionary publications. Foremost is Sprunger's Guide to the Enhanced System Tester. Retrieve it from the Files section of the MetaStock Online Community Website. http://forum.equis.com/files/3015/metastock_files/entry19676.aspx
There can be calculation differences between them but if you plug investment rules created by GSSTA into the MetaStock System Tester, you should see agreement in equity and profit values. The differences will amount to less than one-half of one percent.
Often a set of investment rules will generate conflicting signals. For instance, it might call for an Enter Long trade on the same bar as an Enter Short trade. What is to be done in those cases? The governing directives are often called the Order of Execution. The Genetic System Search for Technical Analysis program, Equis MetaStock and others use the following rules to resolve any signal conflicts.
On the development of security investment rules
A form of evolutionary computation
Comments on the operation of the GSSTA Program
The use of technical indicators
RSS Feed 