Building Reliable Trading Systems: Tradable Strategies That Perform As They Backtest and Meet Your Risk–Reward Goals

Traders have long been drawn to the idea of developing a reliable trading system. But before you embark on this journey, you must first have a realistic understanding of what a "tradable strategy" must encompass. For more than twenty-five years, author Keith Fitschen—whose most popular system, Aberration, has been named "One of the Top Ten Trading Systems of All Time" by Futures Truth —has continuously developed and actively traded his proven systems. Now, he shares his extensive experience in this field with you. Building Reliable Trading Systems skillfully describes the critical steps a trader needs to follow to excel in today's dynamic markets. Along the way, Fitschen touches on exactly what it takes to build, test, and implement a profitable technical trading system. You'll become familiar with everything from the dangers of curve-fitting to the importance of knowing your personal risk tolerance. You'll also gain valuable insights on entries, exits, and trading filters; money management techniques for both large and small stock and commodity accounts; as well as advice on avoiding the influence of some misguided trading lore. Written with the serious trader in mind, Building Reliable Trading Systems is an accessible guide to creating a system that will generate realistic returns over time.

Preface vii Chapter 1 What Is a “Tradeable Strategy?” 1 Chapter 2 Developing a Strategy So it Trades Like it Back–Tests 7 Chapter 3 Find the Path of Least Resistance in the Market You Want to Trade 31 Chapter 4 Trading System Elements: Entries 45 Chapter 5 Trading System Elements: Exits 65 Chapter 6 Trading System Elements: Filters 89 Chapter 7 Why You Should Include Money Management Feedback in Your System Development 107 Chapter 8 Bar–Scoring: A New Trading Approach 119 Chapter 9 Avoid Being Swayed by the “Well–Chosen Example” 133 Chapter 10 Trading Lore 153 Chapter 11 Introduction to Money Management 175 Chapter 12 Traditional Money Management Techniques for Small Accounts: Commodities 191 Chapter 13 Traditional Money Management Techniques for Small Accounts: Stock Strategy 215 Chapter 14 Traditional Money Management Techniques for Large Accounts: Commodities 221 Chapter 15 Traditional Money Management Techniques for Large Accounts: Stocks 233 Chapter 16 Trading the Stock and Commodity Strategies Together 241 Appendix A Understanding the Formulas 245 Appendix B Understanding Futures 251 Appendix C Understanding Continuous Contracts 265 Appendix D More Curve–Fitting Examples 273 Index 277

KEITH FITSCHEN has been developing technical trading systems for the futures markets for over twenty-five years and has actively traded his systems during that time. In 1986, he developed Aberration, one of the most successful mechanical systems ever. It was commercially released in 1993 and four times has been named "One of the Top Ten Trading Systems of All Time" by Futures Truth. Fitschen recently developed a stock-trading system that profits in both bull and bear markets. He has spoken at numerous technical conferences and workshops, and hosts seminars across the country each year. Fitschen is the President of TradeSystem, Inc., and provides trading system information on his website: www.keithstrading.com.