The first edition of the article is a summary of reading "The Road to Financial Freedom" [1], and introduces all the steps of system development (your own understanding will be supplemented appropriately, please correct me if you don't understand it properly). I hope that the books and materials I will read in the future can be added as a framework and modified appropriately.
For books and materials, please refer to the resources at the end of this article.
Knowing oneself plays a key role in goal setting, which should become an important part of trading system development.
Then, according to these lists, determine the tasks and goals.
You trade or invest according to your own view of the market. Read some books, write down your views on the market and list your views on various parts of the system.
Focus on a certain concept, such as trend tracking, band trading, value trading, arbitrage and spread trading.
Macro-environmental analysis to determine the long-term macro-economic situation.
Long term and short term.
Scheme is a necessary condition before taking other actions, and it is a basic aspect of entry and exit, which can improve the reliability of the system.
The five steps of the plan:
First, determine whether the appropriate conditions are suitable for a specific system.
Such as a system suitable for a bear market.
Second, market choice. Choose the market for trading, and consider six aspects:
(1) What is the liquidity?
(2) Is it a new market?
(3) What about the exchange? Do you know its rules?
(4) The fluctuation range of the price within a specific time range.
(5) the degree of capitalization.
(6) To what extent did the market follow your idea? Your idea is in line with the market.
(7) Choose an independent market portfolio. Consider the relevance of various markets.
Third, the market direction. Summarize the leading direction of the market in the past six months.
Fourth, the program conditions. According to your trading philosophy, you must have the conditions and necessary standards to enter the market.
Fifth, the choice of market timing. Timing signal.
Scheme test, I don't know much about it here.
(1) test scheme failed.
(2) pole inversion or depletion mode scheme.
(3) Turn-back scheme
There is also the relationship between filters and schemes.
Scheme selection includes market entry signal. There are the following kinds of market entry signals, which will be tested slowly in the future.
Pipeline breakthrough, icon breakthrough, fluctuation interval breakthrough, ADX, moving average and adaptive average, swing index and randomness.
Stop loss point: if the idea fails, this is the point to protect the funds from exiting the market.
Function:
First, set the maximum risk you are willing to take. For example, if the entry price is 50 yuan and the stop loss point is 47 yuan, then the initial risk r is 3(50-47).
Second, set a benchmark to measure the follow-up income. How many times each income is set to R, minus the transaction cost.
Viewpoint: Once entering the transaction, the success of the transaction depends more on the result of price movement than on the result of entering the market.
Looking at the distribution of most losses, it is generally less than 1R, because the delisting point will move up.
Stop loss method
First: higher than the market noise. The average true amplitude 10 daily moving average is 2.7-3.4 times. Long-term stop-loss price with daily fluctuation of 10 can be used. 3 times and weekly fluctuations.
Second, find the maximum unfavorable offset MAE and use a certain proportion of this value. The highest price and the lowest price, the price trend of the worst day you may encounter during the whole trading period are not conducive to holding positions.
Third, the closing price stop loss will lead to higher R multiplier trading.
Fourth, based on the concept of entry, use a reasonable stop-loss price.
(1) $ stop loss price A transaction is willing to bear more losses than MAE.
(2) It is best not to fantasize that the percentage will be turned back to the stop-loss price on the basis of MAE analysis. (3) The fluctuation range is three times of the stop-loss price ATR.
(4)DEV stops calculating the average true fluctuation range and the average true fluctuation range of standard deviation plus a standard deviation plus a correction factor 10% or two standard deviations.
(5) Pipeline Breakthrough and Moving Average Stop Loss Price
(6) Stop the price within a certain period of time and quit without realizing profit, which is suitable for short-term and not for long-term.
(7) Arbitrary price stop and psychological price stop. Market intuition is very good, arbitrary stop loss price. Stop loss at psychological price: people are in poor condition.
Disadvantages: increasing stop loss reduces the reliability of the market.
Most systems require multiple exit strategies.
Exit strategy classification:
The expected return is the average value of the R multiplier (average return divided by average loss, see formula 9- 1), and the market exits the selection.
Expected return = win_r/loss_r (9- 1)
Win_r obtains the average R multiplier of each profit based on all profitable transactions.
Loss_r obtains the average R multiplier of each loss based on all loss-making transactions.
Look at the distribution of R multiplier, what is the profit R multiplier, and whether the loss is less than1r.
Remember to test the R multiplier distribution in the following different markets:
A slow rise
steep rise
Smooth lateral movement,
Violent lateral movement
A slow descent
toboggan
The percentage of the total risk of funds is the percentage of the total account, and the law holds:
(1) With other people's money, the total risk ratio is below 1%.
(2) Self-owned funds: 0.5%-2.5%
(3) Pursuing huge returns and taking greater risks: more than 2.5%.
Location determination model classification:
According to the above, make a trading plan, which should include preparing for possible disasters and designing an executable plan for each disaster.
What if there is a new signal after the funds are used up?
First, restrict new purchases; Second, eliminate the worst-performing stocks and increase new shares; Third, continue to buy new ones and determine the size of positions.
Six key factors affecting system development: