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Building Algorithmic Trading Systems: A Trader's Journey From Data Mining to Monte Carlo Simulation to Live Trading, + Website by Kevin J. Davey

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CHAPTER 8 Designing and Developing Systems

With the vast multitude of trading system software packages now available, designing your own trading system has never been easier. Of course, the popularity of packages such as TradeStation, NinjaTrader, and MultiCharts is both a blessing and a curse. These simple-to-use software programs make turning ideas into strategies easier than ever before. What used to take weeks to accomplish in Microsoft Excel or in a hardcore programming language (such as C, C++, Visual Basic, or, for those older programmers out there, Fortran) now takes minutes or even seconds. Life is certainly easier in that respect.

The downside to this modern software—besides the fact that many people are testing millions of trading ideas every day and will likely discover any “edge” you find, eventually rendering it useless—is that trading software makes it too easy. Simply look a chart, insert a strategy—possibly one of the many standard strategies that come with the software—and you can quickly analyze and optimize to your heart’s content.

Unfortunately, it is this simplicity that is also the Achilles’ heel of the software. It is nearly impossible to create a viable strategy in the simplistic manner that trading software products describe. Taking the easy way may indeed give you a strategy with a terrific-looking back test, but when the strategy starts running live, all statistics turn bad. Perhaps this has happened to you, as it did to me in my earlier development ...

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