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A Guide to Creating A Successful Algorithmic Trading Strategy by Perry J. Kaufman

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CHAPTER 18 Summary

I stated in the Introduction that this book is short so that you would read it all. I’ve tried to limit each section to only those ideas that every algorithmic trader will need to confront and resolve in order to be successful. I’m sure there are other important concepts that I’ve omitted.

The following is a brief summary of those items that I don’t think you should forget:

  1. Your strategy must have a sound premise.
  2. Your strategy must match your trading personality.
  3. Fewer rules and clear ideas are most likely to be successful.
  4. Each rule must stand on its own as successful.
  5. The best strategies work in many markets and over a sufficient number of years.
  6. When volatility is very high, the risk is not worth the reward.
  7. Use multiple parameters to stabilize your results.
  8. Use stops only to protect against disasters. Try to use your strategy’s natural exit.
  9. Take profits if you’re a short-term trader, but not if you’re a trend follower. Use multiple target levels.
  10. There is no perfect system. Accept and manage the risk. You can always trade smaller positions.
  11. Accept when your system didn’t work on out-of-sample data and move on. Don’t try to remove an individual loss.
  12. When you’re out of the market, you can’t suffer a price shock.
  13. When ranking stocks for your portfolio, simple is better.
  14. Use equal-weighting wherever possible.
  15. Strategy diversification is better than market diversification.

One last point: It’s good to listen to and read about other strategies. Some of ...

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