Harness the Power of Mechanical Trading Systems

Chapter 1: Introduction

Discusses the pros and cons of system trading. There are some advantages to systems. They avoid a lot of issues of stress and psychology that plague discretionary traders, they can implement techniques too complicated for humans to master, and they can easily be used to turn small accounts into incredibly massive ones. They are ideal for people who have better things to do during the day than look at price charts.

Chapter 2: The System Report Explained

Good and bad trading systems have different ways of telling you whether or not they will work in the future. After working through this chapter, you will understand the basics of how to evaluate a system, and will gain experience using these methods as we discuss good and bad systems in the book.

Chapter 3: William Tell Bonds

Earik used this system in his personal accounts as well as in the accounts of his partners when he worked at the Board of Trade. This system was traded in the past. It was crushed. The bond market is very accurate. Although it is an old system and Bond futures have changed a lot in the last 16 years, the core ideas behind this method are still valid, and if accuracy is your cup of tea, you will be hard pressed to find anything that can hold a candle to this.

Here is the system report from one of the nineteen individual patterns that go into this method.

The number is accurate. The worst losing streak ever was a set of two losses in a row. The pattern of this report has been running for the last 16 years, and it has been running since 1990.

After reading the William Tell chapter, you will know how to build 70%, 80%, and even 90% accurate systems. If you already have a system that you like, odds are you can make it 888-282-0465 888-282-0465 888-282-0465 888-282-0465 888-282-0465 888-282-0465 888-282-0465 888-282-0465 by adding a few changes to the way you enter and exit trades.

Chapter 4: The Fallacy of Optimization

We will take a look at this chapter. There is a migration of parameters. An optimal set works one year, but fails the next. Many systems found for sale in the classified ads in the back of trading magazines fail to make money when traded live because of the phenomena of markets. If you have ever purchased one of those methods, you know what I am talking about.

We will discuss the solution to the issues that cause the migration. To prove that our solution works, we will build a system that makes simple moving average crossovers profitable. Yes, the moving average. Can. When traded in out-of-sample data, be made to make money. Only If you can find a solution to the issue of migration. Understanding this one core concept will allow you to build extremely robust systems that will not fall apart as they move forward into unseen data, and will save you hours of unprofitable development work.

Chapter 5: Mean Reversion Systems

When implemented properly, mean reversion systems are extremely robust and profitable. They are easy to design once you understand the core concept. This one is from the book and can only be run with two lines of programming.

It made almost $750,000 hypothetically trading one contract of the SP. The raw edge can be taken and developed further. If you are looking for some ideas to base your own systems on, this is a great place to start. The system shown in the chart is almost exactly the same as it was when it was first built. We like these techniques because they don’t lose their effectiveness over time.

Chapter 6: Stop Losses, Targets, and Other Ways to Lose Money

Some myths are busted in this chapter. Adding dollar-based stops and targets to a mechanical system is one of the worst things you can do. Every single day, novice system developers and traders make this mistake. Better ways to protect your account against losses are available. This also applies to the discretionary traders. The very tools you are using to protect yourself against losses may be the reason why your trading isn’t generating any profits. Start using the techniques that help you generate profits instead of losses by learning the truth about stops and targets.

Chapter 7: Lunar System

Earik’s Lunar System was first presented at the Power User Conference and may be familiar to many in the Wave59 community. This chapter reviews Spherical Astrology, a new way to define planetary aspects, and discusses the functions within Wave59 that allow this technology to be implemented in trading systems. We can backtest Spherical Astrology and prove that it provides a timing edge. Which kind of edge? The chart is below.

The equity curve proves that you were correct about the impact of the Moon and Sun on markets. This chapter walks through the process of building an Astro system from the ground up, all the way from the theoretical ideas behind Spherical Astrology.

If you are already familiar with this system, you will be interested in some of the work done on Venus, which provides a starting point for developing something even more powerful than the core lunar system.

Chapter 8: Machine Learning

The current PRO2 platform and the upcoming PRO3 platform are discussed in this chapter. In addition to an overview of the technologies, we will also evaluate actual systems built using both Hives and the new Genetic Algorithm toolkit.

Earik released. The theory of markets is unified. He created an artificial research assistant after going into a period of intense development work. You can make leaps in the creation of mechanical trading systems by giving your assistant various systems and system ideas and using the power of artificial intelligence and machine learning. How effective are these leaps? This new technology has been used to develop an ES trading system.

Since 2000, this approach has made almost $200k trading one contract of the ES. It has never had a losing year. What does it do? One of the core technical indicators is UltraSmooth Momentum. Many people are familiar with this indicator, but I doubt many would have been able to use it as effectively as our machine learning program did. It’s not necessary to perfect reading this tool anymore, just let the system take it and run.

There are four systems presented in this chapter, two developed with Hive Technology and two with the new tools available in PRO3. The most current editions of Wave59 can use all four of these systems.

Chapter 9: Random Numbers

Most dollar-based stops will turn into a loser if they take a good system. A mediocre system can be turned into a rock star by others. One of the most amazing techniques in the course, an exit approach so powerful that it actually works, is discussed in this chapter. Completely random. Entry signals.

The equity curve can be found below.

This graph shows what would have happened to a theoretical account if it had bought and sold every single bar on the ES and implemented the exit system in every single trade. This is the result of taking. Any possible trade. The exit approach has been used in the ES since 2000. Since we are tracking both buying and selling every bar, trend and timing cancel each other out, and all we have left is the result of how we manage those trades.

The practical result of this test is that we now have an exit method that can be used as a trading indicator all on its own, regardless of the entry signal used to enter the trade. FLIPPING A COIN can be used to create an attractive system. It’s seriously. You will have something special if you combine this with an entry signal that has a real timing edge.

Chapter 10: Merged Systems

The technique to create an adaptive approach is discussed in this chapter. By allowing the strength of one system to counteract the weakness of another, two systems working together can generate more profits with less risk than each was able to accomplish on its own. This approach makes the result extremely drawdown resistant, and robust enough to be almost immune from issues of curve-fitting and other problems that plague lesser systems.

We were able to arrive at a base system that has an incredibly smooth equity curve by pulling together everything done in previous chapters. $13k per year is generated by this system, with over 60% accuracy, very low drawdown and very high reliability. If you read this chapter and implement the system, you will have an awesome method.

Chapter 11: Position Sizing

When to enter, when to exit and how much to trade are three things we must know in order to complete a trade. The entry is the least important of the three elements. This chapter shows how to take a profitable system and leverage it up into a fortune after our random exit proved we can make money without even needing an entry signal. Earik shares a modified formula that results in extremely fast account growth while keeping drawdowns reasonable in this chapter of his book.

The equity curve is the same as before, with one exception. The first system generated almost $200 thousand in profits. Give the second system one contract and 13 years and it will cost you $200. million. . The signals, amount of effort, and account size are the same. If you are serious about trading, then you should do it. Must be. It is appropriate to implement position sizing.

Chapter 12: Options

There is a way to use options instead of buying stock in order to gain massive leverage on a stock-based trading system. The initial account size for futures trading is large, especially for new traders. On the other hand, options contracts can be bought for a couple hundred dollars, and provide a way to achieve similar leverage with a fraction of the required account size.

There are many ways to lose money trading options. Even though your system remains theoretically profitable, if you just purchase as many options as you can for a fixed percentage of your account, you will see your account fall apart. This chapter shows a position sizing formula for options trading that is very useful when trading small accounts. Simply input your account size, various options pricing numbers, and your trading signal, and it will spit out exactly how many options contracts to purchase at what strike price in order to maximize your results.

The results of this approach are shown in the chart above. The result of maximum margin trading a $20k initial account using a stock trading system is shown in the blue line. You can see that doing this earned 150% in two years. The red line shows what would have happened if we used our options formula instead of this approach. We did so with less risk because we earned more than twice as much. When done right, options provide more leverage than any other investment vehicle on the planet. This chapter shows you how to use the formula in your own trading.

Appendix: The Systems

The appendix contains almost 30 pages of Wave59 Qscript source code, which will allow you to implement every system discussed in the book on your own. There aren’t any secret black-box methods here. The logic to everything is pre-programmed for you. If you apply the script to a chart, you will have a working version of the system you are interested in. An auto-trading script will allow you to set Wave59 up to trade on its own, without the need for a human to make sure the internet is on and the broker is connected.