Building Winning Algorithmic Trading Systems: A Trader's Journey From Data Mining to Monte Carlo Simulation to Live Trading

by Kevin J. Davey

Develop your own trading system with practical guidance and expert adviceIn Building Algorithmic Trading A Trader's Journey From Data Mining to Monte Carlo Simulation to Live Training, award-winning trader Kevin Davey shares his secrets for developing trading systems that generate triple-digit returns. With both explanation and demonstration, Davey guides you step-by-step through the entire process of generating and validating an idea, setting entry and exit points, testing systems, and implementing them in live trading. You'll find concrete rules for increasing or decreasing allocation to a system, and rules for when to abandon one. The companion website includes Davey's own Monte Carlo simulator and other tools that will enable you to automate and test your own trading ideas.A purely discretionary approach to trading generally breaks down over the long haul. With market data and statistics easily available, traders are increasingly opting to employ an automated or algorithmic trading system—enough that algorithmic trades now account for the bulk of stock trading volume. Building Algorithmic Trading Systems teaches you how to develop your own systems with an eye toward market fluctuations and the impermanence of even the most effective algorithm.Learn the systems that generated triple-digit returns in the World Cup Trading ChampionshipDevelop an algorithmic approach for any trading idea using off-the-shelf software or popular platformsTest your new system using historical and current market dataMine market data for statistical tendencies that may form the basis of a new systemMarket patterns change, and so do system results. Past performance isn't a guarantee of future success, so the key is to continually develop new systems and adjust established systems in response to evolving statistical tendencies. For individual traders looking for the next leap forward, Building Algorithmic Trading Systems provides expert guidance and practical advice.

Genres: Finance, Business, Nonfiction, Mathematics, Programming, Coding, Economics

245 pages, Kindle Edition

First published January 1, 2014

Reviews

[Jacob W · Rating 5 out of 5]

Critical read

Very simple: if you consider algo trading you must read this book. Enough said. This book provides a critical insight into the process of creating a portfolio of profitable strategies.

[Machine Reading · Rating 5 out of 5]

เล่มนี้บอกองค์ประกอบ และวิธีการในการสร้างระบบเทรดของเราขึ้นมาเองอย่างละเอียด แบบจับมือทำ

ที่มันส์ก็คือ พอสอนเสร็จ ก็สร้างระบบกันสดๆ ให้ดูกันทีละขั้นในเล่มเลย แถมเอาไปเทรดจริงให้ดูอีกแหน่ะ

น่าเสียดายที่ระบบที่สร้างขึ้นมาในเล่มมีจุดจบไม่ค่อยสวยเท่าไหร่

ซึ่งถือเป็นข้อดีที่ให้สติคนอ่านว่า

แม้ว่าเราจะพยายามสร้างการลงทุนตามทฤษฎีที่สมบูรณ์แบบแค่ไหนก็ตาม ก็มีโอกาสที่จะเจ๊งได้ การป้องกันความเสี่ยง และการวางแผนสำรองจึงสำคัญมากสำหรับคนทีจะเป็นนักลงทุน

บทเรียนอีกอย่างนึงก็คือ คุณกล้าเชื่อวิธีการลงทุนของคนอื่นโดยไม่ทดสอบเชียวหรือ ในเมื่อขนาดระบบที่พัฒนามาด้วยตัวเอง ทดสอบอย่างโหดร้าย และรอดมาได้แบบมีกำไรแท้ๆ กลับดับสนิทพอลงเงินจริง

ไม่ว่าการลงทุนนั้น จะเป็น อสังหาฯ หุ้น Forex หรือ ทองคำ จะลงทุนด้วยวิธีวิเคราะห์ปัจจัยพื้นฐาน หรือสายเทคนิค ต่างก็มีทั้งวิธีที่ดี และเหมาะกับเรา และวิธีที่พาเราเจ๊ง ดังนั้น เราควรจะรอบคอบก่อนจะนำไปลงทุนจริงด้วยเงินของเราเอง

ดังนั้น ใครที่ยังถามอยู่ว่า
"มีเงิน 300,000 ลงทุนอะไรดี"
"คริปโตฯ น่าลงทุนมั๊ย?"
"อสังหาฯ ยังลงทุนได้หรือไม่"
"หุ้น XYZ น่าลงหรือเปล่า" ฯลฯ

บอกเลยว่า คุณอยู่ในภาวะอันตรายมากๆ ครับ เพราะโลกการลงทุน มี "ไฮยีน่า ที่สวมชุดแกะ" อยู่เต็มไปหมด

ที่นับถือหัวใจผู้แต่งเลยก็คือ แม้ระบบที่ตนเองสร้างมาจะเจ๊งคาตา ก็ยังกล้าแสดงให้ดู ไม่กลัวเสียหน้า ไม่กลัวดูไม่ดี เพราะเขาเน้นที่กระบวนการในการสร้างระบบจริงๆ ไม่ใช่เรื่องของผลตอบแทน

เล่มนี้ผมให้ 5/5 เลยครับ (หากมี 10 ผมก็ให้ 10)

[Jacqui Schischka · Rating 5 out of 5]

I thoroughly enjoyed this book. It was an interesting read and discussed a lot of concepts that are pertinent to me and where I am in my trading journey. I imagine I will read this book many times to take in as much information as I can but I am definitely better equipped for my algo journey having read this book.

[Paul · Rating 4 out of 5]

The most important thing this book taught me was to stay the fuck away from algo trading.

[Belhor Crowley · Rating 4 out of 5]

Well here goes my first serious non-fiction book of 2021. I was not expecting to enjoy this book so much. It was honestly very sobering.

This book has just the right amount of detail and covers almost every worthwhile topic you need to know to start developing trading systems. Though it should be noted that it is mostly suitable to people with no prior experience with system trading. But if you in fact have no knowledge of stock markets and don't know any technical analysis, I would recommend leaving this book and starting with The Art and Science of Technical Analysis: Market Structure, Price Action, and Trading Strategies instead.

The writer starts with a short story of how his journey in the stock market trades started. Then, explains the general philosophy behind system trading and follows with a more in depth analysis of technics, formulas, charts and strategies you need to understand. This book intends for you to follow these methods and technics and design your own trading system along the way. I did not do that.

You actually go through the whole process of developing your system twice. Once to explain the nuts and bolts of the development process and all its pit falls and mistakes, and once to show you how a real world system is developed and put to use with real money. On top of all that you get a week by week analysis of this system's performance in the market which is very worthwhile.

The writer often offers his own preferred timeframes and parameters along with brief explanations about alternative implementations which other famous traders sometimes use or promote.

This book helped me realize I know way too little about trading in the stock markets. I need to take a step back and read a few more books to fill those gaps and come back to this book again maybe in a year or two but hopefully sooner.

I am still too green to even be able to tell if trading is something I can get into, nevertheless, I think this book was totally worth the effort and time since now I have a much better idea of how a trading system actually works and how delicate of a process it is.

[Jone · Rating 5 out of 5]

Um dos grandes livros de trading, escrito por quem sabe verdadeiramente do que está a falar. Kevin Davey the real deal!

[Gabriel Santos · Rating 3 out of 5]

Despite very informative and exciting in the first half it gets a little bit repetitive when it comes about positioning size and other things. It could be shorter.
Even though I still recommend it for the ones who have no clue about Monte Carlo methods.

[Jairo Fraga · Rating 5 out of 5]

Perfect introductory book on how to make valid trading systems. Usually when we discover backtest engines we will optimize parameters to maximum extent, in order to make visually appealing fictional equity curves, but as soon as we inadvertedly put money on those strategies, it seems all of a sudden the strategy crashes. That happens due to poor overfitting, where no cause-effect is found, only spurious correlations.

The author, having won world futures trading championship, shares his methodology for testing strategies, which involves among other things, a walk-forward test, monte carlo and incubation, before even thinking on put his money on the strategy. Surely it's a book worth reading and pinning some pages for guidelines when testing new strategies.

[Peter · Rating 4 out of 5]

Great book, foundational to anyone that wants to learn how to get into algo-trading (or in my opinion, any kind of trading).
Even if you don't like automated trading, you should read this in order to understand what you are up against; this is a basic-introductory book to algo trading and even then, It will probably crush anything you think you know about how trading is done.

It won't teach you how to trade (you should know something about that if you are reading this book, there is a reason you got here), but it will most definitely show you a more holistic approach to trading and how math is quintessential to it at some point.
No snake oil here, just a LOT of hard work ahead, if you ever want to trade against professionals.

Great intro book to algo trading by Kevin Davey, I very much recommend it.

[Erik · Rating 5 out of 5]

I really wish I had read this book with an open mind years ago - it would have saved me many thousands.

In this book, Kevin walks you through the exact mistakes he made (and that nearly every trader inevitably makes), so you don’t have to repeat them. With over 30 years of real-world experience, he really brings some insight to the table.

But what truly sets this book apart from all the others I have read is a complete, end-to-end blueprint for strategy and portfolio development. From the idea to strategy creation, walk-forward testing, incubation, and eventually live trading - Kevin covers every detail. This is the process he uses. You're free to follow his approach step by step or simply borrow the pieces that fit your own approach.

[Tejas Tapsale · Rating 4 out of 5]

This is a really nice book, gives details for steps to create a workable algo trader. Lot of technique described like walk forward analysis, Monte Carlo simulation and incubation, in this book to verify the system to work in real life are really nice. So that, readers wont create something and relay on back test method used globally and run high on great result dopamine and start day dreaming.
Only thing is writer has emphasized on Future trading rather make it generic. Overall a very good book.

[Shikhar Johar · Rating 3 out of 5]

The book is probably good for a trader who has already been practicing for some time and requires help on trade execution and portfolio management, as these 2 topics are the strength of this book. For amateur traders looking to study and develop stategies, this book can be missed for the time being. None the less, the book concentrates on how to take an algorithm live, which is the best part about the book.

[Piotr Karaś · Rating 5 out of 5]

One of the most realistic, down-to-earth and pragmatic books on developing trading systems I have ever read. The author focuses on the process of building an algorithmic trading system and explains it step by step. The language is very approachable - reading it feels like listening to the author explain it to you, how he does the back test, the forward test, the Monte Carlo analysis etc. The author inspired me to a few new ideas on how to analyze my data and develop my trading systems.

[Tony Cai · Rating 5 out of 5]

An eye-opening first look into the world of Algorithmic / Systems trading.

Opened my eyes to the perils of backtesting / over optimizing and how we can improve the robustness of the process of identifying / refining / walking-forward/ incubating and of course, trading a strategy live.

Also like his tidbit at the end in terms of how he actually used his process to develop an actual strategy and what he did in terms of monitoring that strategy in the live markets.

[Ilia · Rating 4 out of 5]

That's definitely a must-read for anyone who is building a trading system/trading bots. If you've been doing that already for a few years, you may still find some insights and interesting ideas or principles which you might have missed. No 'secret sause' recipes (thankfully), pretty good descriptions of what it takes to create a working system and how to ensure that the backtests are adequate.

[adsf · Rating 4 out of 5]

this book gives you an introduction into the world of algorithmic trading, and I would recommend it if you're interested in the field. it does this through telling the story that the author went through and the approaches, and helps you understand the techniques, setbacks and concepts that you might encounter when beginning algorithmic trading

[Steve.W · Rating 4 out of 5]

finished to read most of the book, Page 41~69, 115~243. it's good extended reading this after Robert Pardo's book about Walk-Forward Test/Analysis

[SDZZ · Rating 4 out of 5]

This is the first book related to algo trading I read. It inspired me a lot. But I don't like the experience of the World Cup Championship of Futures Trading Triumph.

[Rei Hanashi · Rating 4 out of 5]

Can use some ideas and information.

[Treker Batt · Rating 3 out of 5]

There is good information in here for rank newbies to algo trading, but nothing groundbreaking for someone with even a little experience. The section on Monte Carlo Analysis is really good, however.

[Hüseyin Çötel · Rating 5 out of 5]

This book is maybe a little outdated now but i will still give it a 5 since it is great book for reading someone's algo trading journey.

[Javier Villar · Rating 4 out of 5]

In this book one can find a sheer gem in this question: "Strategy, then position size, or strategy and position size together?" Probably, is the caviar (insert sophisticated food of your choice here) of food for thought in trading.

I disagree with the answer given, since for separating the design of the edge and the design of the size f, there must need a way to isolate edge from size. This could be called as "the size paradox". R-Multiples is the answer.

[Fred Tyre · Rating 4 out of 5]

Although this was a fascinating read with a lot of great introductions to various techniques, I'm not able to apply any of it at the end of the book. Once I've researched the topics he talked about, I should be able to implement a similar work flow (theoretically). Perhaps if I had the money to buy NinjaTrader things would be better for me, but I can't believe that a few scripts in the appendix would help me out very much.

[Lawrence · Rating 4 out of 5]

Decent. Great for the fundamentals for a solo algo trader. One you've read this, you're ready to start the (long) path to finding and deploying an edge.

[Tang · Rating 5 out of 5]

Awesome stuff! I am using the materials of this book as the backbone for my trading systems