Trading Books: ‘The Evaluation and Optimization of Trading Strategies’ Author: Robert Pardo Publisher: Wiley Trading Year: 2008 Book Review Rating: ***** Highly Recommended Topics Covered:
  • Trading Systems
  • Trading System Development
  • Optimization of Trading Systems
  • Walk Forward Optimization
  • Back Testing Trading Systems

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Summary:

I recommend ‘The Evaluation and Optimization of Trading Strategies’ to everyone who wants to learn how to build trading systems. It is an outstanding book that any serious system trader should own and study.

Overall well worth reading – The quality of the content and the experience that Robert Pardo brings to the book is worth many times the price you will have to pay to buy it.

The Evaluation and Optimization of Trading Strategies (Wiley Trading) by Pardo, Robert 2nd (second) Edition (2008)

Book Review:

Today’s book review is about the Evaluation and Optimization of Trading Strategies by Robert Pardo.

What’s really great about this book is the clarity with which Pardo describes systematic trading and how to use it for profit. He describes step by step the trading system development process, and then also provides a really clear explanation of how to properly back test your trading system to make sure that it’s profitable and the steps you have to go through to make sure you get an accurate and realistic back test. 

He also describes in great detail the process that you need to go through to correctly optimize your trading system, to make sure you avoid problems like fitting, like having hindsight bias in your trading system and really making sure that whatever system you ultimately end up designing and optimizing, it will continue to work into the future as markets change but also on unseen data instead of just working like so many systems do on historical data that you’ve designed and fit the system to. 

One thing that is missing from the book though are specific ideas for trading rules and trading systems that you can incorporate into your own models, so it’s not a book for someone who just wants to be given a trading strategy, do a quick test and then put it into production themselves. It’s a book that’s really written for someone who wants to start from the ground up, understand the basics and the fundamentals of trading system design and then build an entire system from scratch for themselves.

One of the most interesting insights I got from the book was Pardo’s description of what he calls walk forward analysis, which is a method of optimizing your trading system that gives you a really clear understanding of how the system might actually perform in the future.

This is a book that belongs in the bookshelf of every serious system trader. I probably got the most insight and understanding out of this book when it comes to system development, optimization of any book that I’ve read or come across since, so I gave it a 5 out of 5. It is for someone who wants to build and optimize their own trading systems. It’s not for someone who just wants a simple method that they can copy.

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