Permutation and Randomization Tests for Trading System Development: Algorithms in C++

by Timothy Masters

This book provides the trading system developer with a powerful set of statistical tools for measuring vital aspects of performance that are ignored by most developers.

All algorithms include intuitive justification, basic theory, all relevant equations, and highly commented C++ code for complete programs that run in a Windows Command Console.

Reprogramming them in other languages should be easy, given the detailed explanations of each algorithm.

The following topics are covered:

Testing for overfitting at the earliest possible stage

Evaluating the luckiness-versus-skill of a fully developed system before deploying it

Testing the effectiveness and reliability of a trading system factory

Removing selection bias when screening a large number of indicators

Probability bounds for future mean returns

Bounding typical and catastrophic future drawdowns

Is the best indicator or model in a competition truly the best, or just the luckiest?

Which markets provide truly superior profits for your trading system?

What holding time for your system provides the best risk/return performance?

Genres: Finance

159 pages, Paperback

First published February 12, 2020

About the author

Timothy Masters received a PhD in mathematical statistics with a specialization in numerical computing. Since then he has continuously worked as an independent consultant for government and industry. His early research involved automated feature detection in high-altitude photographs while he developed applications for flood and drought prediction, detection of hidden missile silos, and identification of threatening military vehicles. Later he worked with medical researchers to develop computer algorithms for distinguishing between benign and malignant cells in needle biopsies. For the last twenty years he has focused primarily on automated financial market trading systems. He has authored numerous books on practical applications of neural networks and on developing and testing automated market trading systems.

In addition to his technical work, Timothy Masters is the author of two novels. Red Dust and Bones draws on his scientific background to create a hard-science-fiction mystery about humanity's first outpost on Mars and a discovery that could change our understanding of life itself. His other novel, Ixinia, ventures into fantasy.