Quantitative Trading Systems: Practical Methods for Design, Testing, and Validation (Howard B. Bandy, 2007)

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Technical analysis + quantitvative analysis
  • The price and volume reflect all available and necessary information about the company, fund or market.
  • There are patterns in the records of price and volume that regularly precede profitable opportunities.
  • We can discover those patterns.
  • Those patterns will continue to exist long enough for us to trade them profitably.
  • The markets we model are sufficiently inefficient for us to make a profit trading them.

  • Removing the judgement associated with ambiguous chart patterns.
  • Defining unambiguous, mathematically precise indicators.
  • Requiring that no indicator or signal may change in response to data that is received after it has been initially computed.
  • Making extensive use of mathemaical models, numerical methods, and computer simulations.
  • Applying statistical validation techniquies to the resulting trading models.
Metrics to measure success.
  • Net profit $.
  • Net profit %.
  • Exposure %.
  • Net risk adjusted return %.
  • Annual return %. 
  • Risk adjusted return %.
  • Average profit/loss.
  • Average profit/loss %. 
  • Average bars held.
  • Maximum trade drawown.
  • Maximum trade % drawdown.
  • Maximum system % drawdown.
  • Recovery factor.
  • Compound annual % return / maximum system % drawdown.
  • Risk adjusted return / maximum system % drawdown.
  • Profit factor.Payoff ratio.
  • Standard error.
  • Risk-reward ratio.
  • Ulcer index.
  • Ulcer performance index.
  • Sharpe ratio of trades.
  • K-ratio.

  • Expectancy.
  • Sortino ratio.
  • Semi-deviation.
  • Treynor ratio.
  • Value added monthly index.
  • Equity smoothness.
  • Trading frequency.
  • Percent winners.
  • Win to loss ratio.
  • Average profit per trade.
  • Holding period.
  • Pessimistic return ratio.

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