Algorithmic Trading: The Play-at-Home Version
Here's the problem with trying to create your own trading system.How do you back test it to know that it works.  If you back test over the past 5 years then you are only testing your model against a huge bull market.If you back test over the past 20 years then I'm not sure it helps much as the market of 20 years ago didn't really have any of the major market drives of today's markets, HFT's, huge numbers of hedge funds and the money they bring, and huge passive investing via ETF's, all those factors were there 20 years ago, but they weren't the major market drivers that they are now.So for back testing you are damned if you do and damned if you don't:(I think I've said this before but in my experience, a decent trading system is 70%+ market insight.  And there are only really 3 ways to get this insight, hard earned experience, applying new streams of data to the markets and applying math to existing streams of data to unlock new insights.All 3 are being done every day by scores of MIT Phd's.So if you are writing your own trading models you should start by answering the question of what's your alpha when compared to everyone else....