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Trading System Concepts and Design

Trading models are created so that the so called human factor can be minimized. Most of the time, production trading models are utilized by firms like hedge funds and larger institutions. Retail traders having access to backtesting tools like TradeStation and other trading platforms can build their own trading systems easily but rarely do they successfully deploy any models to trade their own money.

Over the years I have helped many hedge funds and pro traders developing, refining and maintaining trading models. The sharp contrast between professionals and the retail traders in understanding what trading systems are driving me insane sometimes.

Here is a partial list of articles I have written on building trading system over the years. I have organized the material below into several sections so that it would be easier to find them. Whenever I can locate the rest of the articles I have written will add them here.

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alphabetical order | posting date

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Emini SP Tick Index Blind Short_20130316_231647
Trading with Tick Index: Blind Short Day Trading Model  member only

I am going to present the first example trading model in this series that exploits the characteristics of the NYSE Tick Index. Most people focus on the intraday behaviour of the Tick Index and forget that it is a great summary statistics tell us what ...


Pigeonhole Principle and the Trap of Higher Win Rate

Most of the time, we see traders focus heavily on higher winning rate and at all cost keeping it that way by various measures. System traders and rookie system creators are also obsessed with higher win rate. Is higher win rate really that important? ...


Forex 24 Hour Day

When A Day Starts At 5 pm Forex markets open continuously 5 days a week, 24 hours a day. The usual time the retail forex markets open is on Sunday at 5 pm, North America Eastern time, until Friday at 5 pm in the same week. Some brokerages offer trad ...

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Euro Bear Putting_20130213_122938
Forex Trading Open Secrets: Euro Dollar Bear Putting  premium content

Bear Putting is the concept of taking advantage of an established down move to capture a part of the move from its remaining momentum to the down side. Similar to the Bull Putting concept, many traders simply ignore this part of the swing if they are not in a short position already. Some will even try to pick bottom against the prevailing down trend. This article will show you that the correct approach to situation like this is to join the side that is still in control.

Bear Putting Models

Following is 24 hour euro dollar chart with dollar gain per $10K lot in the lower panel. The models are in the market 5% to 6% of the time only.


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Euro Bull Putting_20130202_232021
Forex Trading Open Secrets: Euro Dollar Bull Putting  premium content

Bull Putting is the concept of taking advantage of a strong up swing to catch some profit from the remaining part of the move. The idea is sound but most people would not participate in this kind of trades. Many traders think that they can do better than just collecting scrapes. Well, what they fail to see is that these scrapes add up to a lot of money.

The Daytrading Models

Following is a euro dollar 24 hour chart with dollar gain per $10K lot in the lower panel. The models only stay in the market 7% of the time. It is mutually exclusive with the daytrading version of Simplex Trading System, meaning that their trades do not share the same trading days.


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SA VIX Rotation_20121108_130401
Bankable ETF Strategy: VIX Rotation  member only

I am going to present a different kind of swing trading strategy this time using the CBOE Volatility Index VIX to trade S&P 500 ETF (SPY) and Dow 30 ETF (DIA). CBOE VIX is a measure of the implied volatility of the index options on the S&P 5 ...


QQQ EOD 2Percent Down System_20121022_211144
NDX Down 2 Percent Daytrading Model  member onlypremium content

Many of you have read my Nasdaq 100 Down 2% Trading Setup article. Some of you complained that it is very difficult to convert the bias into an usable edge. Here is an example trading model showing you how. [DTBMember] The Performance Followin ...

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FX 24H EURUSD ApexType2_20121017_185527
Forex Trading Open Secrets: Euro Dollar Apex (Type 2) Trading Model  member onlypremium content

No market moves in a straight line. Most of the time strong directional moves will result in pullbacks. Euro Dollar Apex (Type 2) Trading Model is a counter-trend strategy taking advantage of that fact with very good consistent results. With about two third winners and low drawdown, it is a very reliable trading setup to lean on.

The Performance

Following is the 24 hour chart of euro dollar with bottom panel showing the net dollar gain based on a small lot ($10000) since early 2003. 2 pips spread discount is taken into account for all trades.



FX 24H EURUSD Simplex_20121016_125331
Forex Trading Open Secrets: Euro Dollar Simplex Trading Systems  premium content

Simplex was created along with several other models long time ago to provide daily guidelines to a group of forex traders who worked with me long time ago. These models are still working fine through the turbulent years since 2008. I think this set of trading models a good starting point for all traders to understand what mechanical bias is all about.

The Daytrade Model

Following is EURUSD 24 Hour chart with dollar gain per $10K lot (small lot size) in the bottom panel. The amount of money made is not that much on the first glance. But if you know that it only traded 93 times over 2500 trading days, with almost 70% winning rate, you would understand why it is a superior trading setup all by itself.


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SPY NFP Play_20121011_174413
Nonfarm Payroll Week Trading Models  member onlypremium content

It is well know among many professional traders that NFP week has a strong bullish bias. But as I have shown in the article, Nonfarm Payroll Report Bias, it is not that simple in utilizing this bias in reality. I am going to show you 3 trading models ...


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