Chapter
Foundations of System Design
The best system provides instant gratification and constant satisfaction.
Introduction
This chapter examines many key system design issues. Now that you understand some basic principles of system design, you can consider more complex issues. And as you understand these issues, you can design more powerful systems.
We will begin by asking the question: Do markets trend? The answer to the next big question, whether you should trade with the trend or against the trend, is that you should trade with the trend. This chapter presents some test results to support this answer. You can then ask whether you should or should not optimize your trading system. We explore here how well you can predict future performance based on optimization of historical data.
The chapter begins the discussion on risk control issues by addressing whether the initial stop is a problem or a solution and discussing the different types of risk you may face in your trading. You should consider these issues early in your design process. We then look at the different types of data you can use for your testing and what difference, if any, they make. Finally, the chapter explains what is found as well as what is lacking in the system performance summary.
At the end of this chapter, you will be able to:
- Explain how you can diagnose trending markets.
- Know whether to use a trend-following ...
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