The case for mechanical trading strategies
When it comes to implementing trading strategies, there are many compelling reasons to rely on computers rather than human discretion.
- Method for selecting instruments available for trading.
- Entry/exit rules (i.e., when to buy or sell and at what price).
- Capital allocation (i.e., how much money to put into each position).
- Design: Concept development to exploit a market anomaly.
- Validation: Verification of a systematic edge.
- Production: Implementation of live trading.
- Termination: Redesign or abandonment due to deterioration of the market edge.
Thomas Krawinkel, MBA&E, was a co-founder and partner at StatisTrade LLC, a trading strategy evaluation firm that worked with fund managers and family offices to evaluate and improve trading system performance using advanced statistical techniques. An engineer by training, Mr. Krawinkel has been active in the markets since the 1980s. He won the National Association of Active Investment Managers (NAAIM) 2011 Wagner Award for insights related to success factors for system performance.