Beyond Technical Analysis: How to Develop and Implement a Winning Trading System BY TUSHAR S. CHANDE

About the book

This book is considered a classic on technical analysis and still holds a similar influence to the present market conditions. The new thing about this edition is that it comes with updated trading systems that fit in modern markets. 

This book is full of techniques, principles, and guidelines that will aid the trader in his trading decisions. It has a comprehensive methodology that delves into the development and implementation of a personal trading system, as the market always proves that a personally developed, implemented, and tested trading system designed according to the trader’s needs works best in profiting in trade. 

Review

As it proves to be a classic book on finance and trading, this book not only focuses on one aspect of trading but rather discusses all of it. The author goes into trading techniques and principles in great detail and talks about the market conditions that might affect trade—for better or for worse. The discussions about each aspect of trading are then incorporated by the author into a summary that shows what makes a successful trading system.

Most importantly, the author shows, despite being the innovator of technical analysis, that this analysis is not solely what a trader needs to be successful, but an array of knowledge about the market and thorough understanding to be implemented in a trading plan. 

About the Author

TUSHAR S. CHANDE is the President of LongView Capital Management, LLC, of West Des Moines, Iowa. He is a registered Commodity Trading Advisor and has earned a Ph.D. He owns nine US patents and a renowned innovator of technical analysis.

Table of Contents

Preface

1 Developing and Implementing Trading Systems

Introduction

What’s New in This Edition

The Usual Disclaimer

What Is a Trading System?

What Is a Trading Program?

Classification of Return Generation Processes

Comparison: Discretionary versus Mechanical System Trader

Why Should You Use a Trading System?

Robust Trading Systems: TOPS COLA

What Is a “Good” Trading Program?

How Do You Implement a Trading System?

Is Systematic Trading Easy?

Who Wins? Who Loses?

Appendix to Chapter 1: A Brief Technical Analysis Primer

2 Principles of Trading System Design

Introduction

What Are Your Trading Beliefs?

Six Cardinal Rules

Rule 1: Positive Expectation

Rule 2: A Small Number of Rules

Rule 3: Robust Trading Rules

Rule 4: Trading Multiple Contracts

Rule 5: Risk Control, Money Management, and Portfolio Design

Rule 6: Fully Mechanical System

Summary

3 Foundations of System Design

Introduction

Diagnosing Market Trends

To Follow the Trend or Not?

To Optimize or Not To Optimize?

Initial Stop: Solution or Problem?

Does Your Design Control Risks?

Data! Handle With Care!

Choosing Orders for Entries and Exits

Understanding Summary of Test Results

What the Performance Summary Does Not Show

Some Avoidable Pitfalls in System Testing

A Reality Check

Appendix to Chapter 3: Design Issues—Entry and Exit Strategies

4 Developing New Trading Systems

Introduction

The Assumptions behind Trend-Following Systems

The 65sma-3cc Trend-Following System

Channel Breakout-Pullback Pattern

An ADX Burst Trend-Seeking System

A Trend-Antitrend Trading System

Gold-Bond Intermarket System

A Pattern for Bottom-Fishing

Identifying Extraordinary Opportunities

Performance Update: 65sma-3cc System

ATR-Band Breakout Model

Trading Stocks

Summary

Appendix to Chapter 4: Additional Performance Updates

5 Developing Trading System Variations

Introduction

Channel Breakout on Close with Trailing Stops

Channel Breakout on Close with Volatility Exit

Channel Breakout with 20-Tick Barrier

Channel Breakout System with Inside Volatility Barrier

Statistical Significance of Channel Breakout Variations

Two ADX Variations

The Pullback System

The Long Bomb—A Pattern-Based System

Summary

6 Equity Curve Analysis

Introduction

Measuring the “Smoothness” of the Equity Curve

Effect of Exits and Portfolio Strategies on Equity Curves

Analysis of Monthly Equity Changes

Effect of Filtering on the Equity Curve

Modeling CTA Returns

Stabilized Money Manager Rankings

Mirror, Mirror on the Wall

Normalizing Returns

Risk-Adjusted Measures of Performance

Comparison of Risk-Adjusted Performance Measures

Control Charts for Future Performance

Summary

7 Ideas for Money Management

Introduction

The Risk of Ruin

Interaction: System Design and Money Management

Projecting Drawdowns

Changing Bet Size After Winning or Losing

Depth of Drawdowns for Actual Performance Records

Estimating the Duration of Drawdowns

Estimating Future Returns

Chande Comfort Zone

Dealing with Drawdowns

“Rescaling” Volatility

A Calibration for Leverage

Return-Efficiency Benchmarks

Empty Diversification

Comparing Money Managers

Risk and Rewardi n Stocks and Mutual Funds

Summary

8 Data Scrambling

Introduction

What You Really Want To Know About Your System

Past Is Prolog: Sampling with Replacement

Data Scrambling: All the Synthetic Data You’ll Ever Need

Testing a Volatility System on Synthetic Data

Summary

9 A System for Trading

Introduction

The Problem with Testing

Paper Trading: Pros and Cons

Do You Believe in Your System?

Time Is Your Ally

No Exceptions

Full Traceability

“Guaranteed” Entry into Major Trends

Starting Up

Risk Control

Do You Have a Plan?

How Will You Monitor Compliance?

Get It Off Your Chest!

Focus on Your Trading

Applications of Sports Psychology in Trading

Trading with Your Head and Heart

Summary

Appendix to Chapter 9: Creating an Automated Diary of Trading Emotions 

Selected Bibliography

Index

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