Modeling Trading System Performance

Modeling Trading System Performance book front cover
Modeling Trading System Performance book backcover

Deciding the size of the position for the next trade is a two question process:

  1. Is the system working or broken?
  2. What is the position size that maximizes account growth while minimizing the probability of suffering a serious loss?

The book discusses techniques to model and analyze trading system performance.

Modeling Trading System Performance is a sequel to my earlier book, Quantitative Trading Systems.  The focus of this book is on the practicalities of trading as a business.  Key topics include:

  • Analysis of trading results, such as expectancy, trading frequency, holding period, win/loss ratio.
  • Use of Monte Carlo simulation.
  • Estimation of profit potential and drawdown.
  • How to apply position sizing.
  • How to tell whether the system is working or broken.
  • Statistics for traders.

Most of the material in Modeling Trading System Performance is new, both in terms of books published by Blue Owl Press and in terms of other published materials. 

Several trading systems are analyzed in detail.  Everything is completely explained, including the use of free or low cost tools that will enable you to perform a similar analysis of your own trading systems.  Other than Microsoft Excel, the book is platform independent.  It is equally applicable to people using TradeStation, MetaStock, AmiBroker, Wealth-Lab, or any other trading system development platform.

Several common wisdom, traditional method, and sacred cow ideas and recommendations are examined in detail, with results showing that many of them are poor advice.  All of the tools used are fully explained so you can repeat the tests using your own systems and data.

These links each open a pdf file related to the book.

There is only one downloadable program for this book.  The button below downloads the Excel program that performs the calculations.  The name of the downloaded file is MTSPSimulation.xla.txt.  Remove the extra .txt from the file name, then install it as an Excel addin.

The book gives detailed instructions for installation and use of this add-in.

Thanks to one of our readers who pointed out that users of Excel 2013 and later need to perform an extra step when loading the add-in.  This Microsoft page explains:

You can learn more about the book, read additional pages, read reviews, and purchase a copy -- all at Amazon.

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