F. Trading System Example from Mechanica
“Part of back-testing is to determine position sizing and risk management strategies that fit within your drawdown tolerance envelope.”
In this appendix, Bob Spear shows how a trader might construct a simple, mechanical trend following system on Trading Recipes Portfolio Engineering Software. His newest software, surpassing Trading Recipes, is called Mechanica (www.mechanicasoftware.com).
Grow your own dope—plant an economist.
Graffiti seen at London School of Economics
For this example we start with a broad look at the system’s trading ideas, which echo many of the ideas discussed in this book. We construct a hypothetical portfolio and run a backtest up to a certain point in ...