The Evaluation and Optimization of Trading Strategies, 2nd Edition

Preface

THERE AND BACK AGAIN

The first edition of Design, Testing, and Optimization of Trading Systems (DTOTS, as I always think of it) was published in 1991. It would be an understatement to say that the world has changed dramatically in the 17 years between the 1991 edition and this one. Some would say the markets have changed also. I disagree.

The markets do what they always do: incorporate all of the changes in communication, technology, wealth, and trading styles into the instantaneous calculation of their fair value.

I have always considered the defining characteristic of markets to be their ability to adapt and alter themselves accordingly to the changing style of market participants.

In this introduction, we review the principal changes that have occurred during this time and their impact on the markets and trading. Many will seem obvious. Please bear with me in this walk down memory lane, however, for the sum total of these changes has altered the nature of trading and our industry in ways that directly reflect upon the current art of the design and evaluation of trading strategies.

“How?” you might ask, and that would be a very good question. Let me start by offering my reflections on that subject because it is highly relevant to the topic at hand.

The Trading System: From Rock Bottom to Rock Star

The first, and perhaps foremost, difference was that in the early 1990s, the argument that raged was about whether trading systems actually worked. For those who are relatively ...