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Mechanical trading systems - Weissman R.L.

Weissman R.L. Mechanical trading systems - Wiley publishing , 2005 . - 240 p.
ISBN 0-471-65435-3
Download (direct link): mechanicaltradingsystems2005.pdf
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Asset Profit Trades Days Draw MDD MCL P:MD Ratio %W %
SP 13869 316 0.4 -31608 365 11 0.44 1.05 37.34 29.14
ND -9048 278 0.5 -27185 342 11 -0.33 0.96 42.81 30.08
Note: results include a deduction of $100 per round-turn trade for slippage on daily
time frame and $75 per round-turn for shorter time frames. Data source: CQG, Inc.
102
MECHANICAL TRADING SYSTEMS
TABLE 5.14 RSI extremes with 16.67-hour moving average filter and 1% stop for ND; 0.5% stop for SP.
# # Max P:L Time
Asset Profit Trades Days Draw MDD MCL P:MD Ratio %W %
SP 3042 191 0.2 -11110 65 4 0.27 1.04 66.49 35.10
ND -622 170 0.3 -11905 84 3 -0.04 0.99 67.06 34.11
Note: results include a deduction of $100 per round-turn trade for slippage on daily time frame and $75 per round-turn for shorter time frames. Data source: CQG, Inc.
PSYCHOLOGICAL PROFILE OF A SHORT-TERM TRADER

Because short-term traders must make so many decisions during a typical business day, they are among the most likely of the trading personality types to benefit from systematic trading during the initial phase of their careers. More means more—more decisions, more opportunities, and most of all, more stress. Mechanical trading systems eliminate the seat-of-your-pants stress normally synonymous with short-term and especially with day trading techniques.
Because mechanical day traders (in contrast to their discretionary counterparts) have quantified entry, exit, risk and (in most cases) reward, it transforms their modus operandi from fast thinking, fast reactions, and faster burnout into a virtually limitless life expectancy.
Short-term systems can be attractive when compared to intermediate or long-term trading alternatives. Remember that the P:MD shown for the euro in Table 5.4 was 2.55. This compares quite favorably with the top-performing assets throughout Chapters 3 and 4. As stated earlier, the trade-off is that the performance of these shorter-term systems deteriorates dramatically when the trading vehicles analyzed exclude the assets highlighted throughout this chapter. We gain an attractive annualized rate of return and P:MD, but we lose the ability to diversify among negatively and/or uncorrelated asset classes.
A subtler disadvantage is the labor-intensive nature of these systems. Adherence to the system suggests that traders are married to the screen during trading hours. By contrast, for the systems presented in Chapters 3 and 4, traders generally need to check their screens only once a day (usually at the close to determine if entry signals were triggered or stops required adjustment).
Although it is true that short-term traders need to monitor their screens on a continuous basis, since day traders have so many more opportunities, they can and should take vacations to recharge their batteries. Trend traders cannot take vacations to recharge because their sole method of
Short-Term Systems
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compensating for inferior win/loss ratios lies in their ability to capitalize on the few large profitable trades that surface each year. Intermediate-term mean reversion traders also cannot enjoy vacations due to the infrequent occurrences of their high-probability trading signals.
In this chapter’s title I used the term quick-mindedness to crystallize the personality trait needed for success as a swing or day trader. Because these traders are faced with intraday trading decisions, their ability to think on their feet and manage the stress inherent in making 2 to 20 snap judgments each day suggests mastery of a different skill set from their long- or intermediate-term counterparts.
Because day trading is more physically and psychologically demanding and draining than other types of trading, day traders are the most susceptible to burnout. Consequently, beyond my earlier suggestions of using a mechanical system to reduce stress and taking frequent vacations from the market to recharge mental batteries, the key to longevity as a short-term trader rests in the ability to have balance in life—physically, emotionally, mentally, and spiritually. (Although this concept of balance is applicable to intermediate- and long-term traders, it is an almost unwritten and immutable law for swing and day traders.) I say “almost” because we can train ourselves to do anything we set our minds to, and there are exceptions to every rule. Nevertheless, without proper rest, relaxation, exercise, and emotional support from family and friends, burnout is a high-probability occupational hazard for short-term traders.
Although people with this type of short-term trading personality can be trend traders, more typically they gravitate toward mean reversion trading and asset classes. Such traders have mastered many of the traits covered in Chapter 4—the ability to fade the crowd, media hype, and news—coupled with an ability to thrive in the midst of the near-constant activity that defines short-term trading. Typically they enjoy the intraday market action with its requirements of intense focus and concentration, and (if experienced and disciplined) can sometimes even achieve peace and stillness within the heart of chaos and ever-changing market prices.
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