Beyond Technical Analysis: How to Develop and Implement a Winning Trading System, 2nd Edition

Chapter

Developing New Trading Systems

Don’t count your chickens until they are incubated.

Introduction

A trading system is only as good as your market intuition. You can formulate and test virtually any trading system you can imagine with today’s software. The previous chapters studied the basic principles of system design. This chapter develops and tests several original trading systems to illustrate the application of those principles:

1. A simple trend-following system—the 65sma-3cc system.
2. A pattern-based system for long trades only—the CB-PB system.
3. A trend-seeking, strength-of-trend system—the ADX burst system.
4. An automatic mode-switching system—the trend-antitrend system.
5. Intermarket systems for correlated markets—the gold bond systems.
6. A system for picking bottoms—a bottom-fishing pattern.
7. A system for increasing bet size—the extraordinary opportunity model.

In this chapter, each case illustrates a different design philosophy. The 65sma-3cc system is examined in the greatest detail; the same principles can be applied to all other systems. Long-term test results with continuous contracts are shown for every system.

This is not a recommendation that you trade these systems. These systems have all the limitations of hypothetical test results. They are discussed here only as examples of the art of developing systems that suit your trading style.

The Assumptions behind Trend-Following ...