Trading Systems and Methods, 6th Edition

PREFACE

What I've learned by trading and studying the markets for many years is that markets do not repeat themselves. Yes, there are similar moves for different reasons, and seemingly the same reasons cause different moves. Where is the common ground? I believe it is in turning specific patterns into generalized ones. For example, is a weekly pattern where there are four days up and one day down on Tuesday different from four days up and a down day on Friday? It's not different if you see it only as four days up and one day down. Successful strategies move from the specific to the general.

Success in trading is in the ability to see the bigger picture, the shape of the price moves rather than the highly specific pattern. That's why long-term moving averages work. You can mix the prices around and still get the same average. Fine tuning was never a good solution. We always return to the idea “loose pants fit everyone.” Because we don't know exactly how a price move will develop, we need to build in the flexibility to stay with your strategy through as many challanging scenarios as possible.

THE MOVE TOWARD MORE ALGORITHMIC APPROACH

The algorithmic trader, myself included, is more comfortable having an idea of the risk and reward of a system, knowing full well that future losses can be greater, but so can future profits. What makes traders nervous is the unknown and unexpected risk. Having any type of loss-limiting method, whether a stop loss or just the change in trend direction, ...