Finished to Chapter 10, 37% of book

README.md

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 # building-winning-algo-trading-system-book
 
-A book review for Building Winning Algorithmic Trading System by Kevin J Davey
+A book review repository for Building Winning Algorithmic Trading System (A Trader's Journey From Data Mining to Monte Carlo Simulation To Live Trading) by Kevin J. Davey

ii_chap5_testing_and_evaluating_a_trading_system.md

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+## Chapter 5 Testing and Evaluating a Trading System
+

ii_chap6_preliminary_analysis.md

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+# Chapter 6. Preliminary (初步的) Analysis
+
+A complete performance report is long, only few worth notice.
+
+## Ground Rules
+
+1. Performance report should be based either on live data or on a walk-forward test.
+2. Should be multiple years of data (5 ~ 10 years), with a multiple trades (30 ~ 100 trades)
+3. Review performance reports without position sizing applied (only view single trade strategy)
+4. Accurate assumptions for commission and slippage.
+
+## Numbers to look in performance report
+
+1. **Total Net Profit**: e.g. with a walk-forward backtest, annual net profit should be $5,000 per year per contract minimum, preferably $10,000 or more.
+2. **Profit Factor**: gross profit divided by the gross loss (including commissions) for the entire trading period.
+   1. Anything over 1.0 is good
+3. **Total Number of Trades**: ensure enough trades are taken. (120 ~ 400 in reports)
+4. **Average trade net profit**: it's after commissions and slippage.
+5. **Average Losing Trade**: combined with average trade net profit to calculate expectancy
+6. **Expectancy (期待)**
+   1. Normal expectancy = $ average winners * win % + $ average losers * lose % = average trade; average $ loser is -ve
+   2. **Tharp Expectance (promoted by author)**  = (average $ winners * win% + average $ losers * lose %)/(- average $ losers);
+      1. It's risk-adjusted. i.e. every $ you risk, what's your expected return?
+7. **Total slippage and total commissions**
+   1. Total slippage (spread) is more critical. (as we buy at ask, sell at bid)
+8. **Maximum Drawdown**: how much an investment or trading account is down from the peak before it recovers back to the peak.
+
+## Graph to look after performance report
+
+1. **Closed trade equity graph**: An equity curve is a graphical representation of the change in the value of a trading account over a time period
+   1. 1st thing in equity curve: slope. 
+   2. 2nd thing in equity curve: flat periods. A good strategy should steadily grow.
+   3. 3rd thing in equity curve: drawdown periods. No drawdown? Problem hidden.

ii_chap7_detailed_analysis.md

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+# Chapter 7. Detailed Analysis
+
+Use Monte Carlo Analysis at later stage.
+
+## What is Monte Carlo Analysis/Simulation
+
+Author's Monte Carlo Simulation Excel sheet is not appropriate for me, read
+
+* [Monte-Carlo Simulation Engine](https://medium.com/fintechexplained/monte-carlo-simulation-engine-in-python-a1fa5043c613) for reference
+
+Benefit of Monte Carlo Simulation, Answering following questions:
+
+* What's my **risk of ruin (account get wiped out)** for a given account size?
+* What are the chance of my system's having a maximum drawdown of X percent? (How dangerous is my strategy)
+* What kind of annual return can I expect from this trading system?
+* Is the risk I am taking to trade this strategy appropriate? for the return I am receiving?
+
+## Inputs to Monte Carlo Simulation
+
+* **Base Starting Equity**
+* **Stop Trading if Equity Drops Below $**: threshold consider account "ruined"
+* **# Trades, 1 Year**, (not so important for me)
+* **Individual Trade Results** (should be calculated by python)
+
+## Simulator Output
+
+Output sheet should contain:
+
+* **Starting Equity**
+* **Risk of Ruin**: within a year's time, the percentage of account drop below threshold
+  * It's obvious that larger starting equity mean lower chances of ruin
+* **Median Drawdown**: Median value of **maximum drawdown**. Maximum drawdown is the maximum percentage drop in account size from an equity peak (measured from the previous equity peak).
+  * e.g. $5,000 drawdown, after peak equity of $20,000 = $5,000 / $20,000 = 25 percent drawdown
+  * For every simulation iteration, there will be one maximum percentage drawdown. Then iterations form a distribution (from 0% to 100%). Median is from this distribution.
+  * No reason why use median, also can use mean if it makes more sense.
+* **Median $ Profit, Median Return**: similar as median drawdown
+* **Return/Drawdown (aka Calmar Ratio calculated over 3-year)**: Considered most important.
+  * This ratio shows "it takes Y risk to make X"
+  * Higher, the beteer
+* **PROB > 0**: the percentage that the system will make money in the first year of trading.
+
+Important Performance Parameter
+
+| Parameter                                 | Source                 | Utilized During | Threshold                                        |
+| ----------------------------------------- | ---------------------- | --------------- | ------------------------------------------------ |
+| Total net profit                          | Performance Report     | Initial Review  | ~$10K per year per contract                      |
+| Profit Factor                             | Performance Report     | Initial Review  | > 1.0 OK, > 1.5 ideal                            |
+| Average trade net profit                  | Performance Report     | Initial Review  | >$50 per contract                                |
+| Tharp Expectancy                          | Performance Report     | Initial Review  | >0.10                                            |
+| Slippage and commission                   | Performance Report     | Initial Review  | Discard if $0, otherwise $5 commission 1-2 ticks |
+| Maximum Drawdown                          | Performance Report     | Initial Review  | Should be much smaller than total net profit     |
+| Equity curve Slope                        | Equity Curve           | Initial Review  | Ideally rises at 45-degree angle                 |
+| Equity curve flat periods                 | Equity Curve           | Initial Review  | Short in duration                                |
+| Equity curve drawdown, depth and duration | Equity curve           | Initial Review  | Proportional to overall curve                    |
+| Equity curve fuzziness                    | Equity curve           | Initial review  | Small is ideal                                   |
+| Risk of ruin                              | Monte Carlo simulation | Detail review   | < 10%                                            |
+| Median maximum drawdown                   | Monte Carlo simulation | Detail review   | < 40%                                            |
+| Median % return                           | Monte Carlo simulation | Detail review   | > 40%                                            |
+| Return/drawdown ratio                     | Monte Carlo simulation | Detail review   | >2.0                                             |

ii_chap8_desigining_and_developing_systems.md

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+# Chapter 8. Designing and Developing Systems
+
+![My Strategy Development Process](img/fig_8_1.png)
+

iii_chap10_trading_ideas.md

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+# Chapter 10. Trading Idea
+
+Following topics to cover:
+
+* Entry rules
+* Exit rules
+* Market selection
+* Time frame/bar size
+* Programming
+* Data considerations
+
+## How will you Enter a Market?
+
+Entry Lovers = people ignore the drawdowns during the trade and say "Look what would happened if you had bought Microsoft way back when."
+
+Mis-conception: 
+* The time before entry is really the only time you feel in complete control. You tell the market, “Mr. Market, you must do this, that, and the other before I place a trade to enter. If you do not follow my rules, Mr. Market, I will not enter a trade. I am in charge here.” That feels nice, as opposed to the time spent in a trade, where many times you hope and pray the market roller coaster will go your way!
+
+Entry & trading style:
+
+* Long-term swing trader (trades lasting weeks to months), an entry a few days early or a few days late won't affect
+* Scalping (抽头转卖) trader: entry becomes important. An entry off by a tick or two could turn a winning system into a piece of garbage.
+
+After getting ideas, first turn it into *pseudo code*: "If close this bar is the highest close of last X bars, then by next bar at market."
+
+* pseudo code can help to identify any important variables.
+
+Few tips:
+
+* *Keep it simple*
+* *Limit number of input parameters*. More parameters means more chance of over-fitting
+* *Try to think differently*. Moving average crossovers hav been over used.
+* *Use a single rule at first*. Slowly add new conditions if they significantly improve performance. Many entry conditions may turn out useless.
+
+## How will you Exit a Market?
+
+Most important, to get maximum profit or minimum loss. Need spend a lot of time
+
+Common ways of exiting a market;
+
+* **Stop and Reverse**: A new entry position means exit for existing one.
+* **Technical-based exits**: Support/resistance lines, moving averages, candlestick patterns, etc. Need coop with existing positions
+* **Breakeven (保本) stops**: Often seem to limit profit, since they typically exit on a retracement (回撤), with market then resuming its earlier trend
+* **Stop-losses**: when coupled with good entries, can help prevent catastrophe.
+* **Profit targets**
+* **Trailing stops**
+
+## What Markets Will You Trade?
+
+Two schools of trading system:
+
+* One for all: Applying one trading system over all market, tuning parameters for each market.
+  * Pro: If it works on all markets, it is robust.
+  * Con: Development is difficult. Need to relax their acceptance criteria
+* One for a particular market
+  * Pro: Highly customization. Easier to create. 
+  * Con: Not robust.
+
+## What Type of System Do You Want?
+
+Author's preference, start a trading strategy as a day-trading. (i.e. in/out, multiple trades a day).
+
+## What Time Frame/Bar Size Will You Trade?
+
+Time Frame = length of time for each bar.
+
+* **Time frame contraction (收缩) and dilation (扩散)** used by many trader: 
+  * First, Test a strategy with a 10-min time frame
+  * If succeed, testing on 9-min bar
+  * Problem: add/minus 1 min will lead to change of indicator
+
+## How will you Program the Strategy?
+
+Program it by yourself.

iii_chap9_strategy_development-goals_and_objectives.md

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+# Chapter 9 Stragey Development - Goals and Objectives
+
+**SMART**:
+* **Specific**: specific goal;
+* **Measurable**: want to have a trading system with certain performance metrics.
+* **Attainable**: "I need to develop a trading system that will provide 500 percent annual return with less than 2 percent maximum drawdown" NOT REALITY!!!
+* **Relevant**: Heart and mind must be fully committed.
+* **Time bound**: Trading (creating strategies) cost time.
+
+Create first SMART goal, implement trading strategy, then re-evaluate it after trails
+
+Using a wishlist to create a SMART goal:
+
+| Like/Dislike | Item                               | Does System Meet This ? |
+| ------------ | ---------------------------------- | ----------------------- |
+| Likes        | Trades e-minis only                |                         |
+|              | X % annual return, Y% max drawdown |                         |
+|              | Calmar > Z, Sharpe > W             |                         |
+|              | No overnight exposure              |                         |
+|              | 2 or fewer indicator               |                         |
+|              | 100% mechanical                    |                         |
+| Dislikes     | More than 2 trades per day         |                         |
+|              | Adds to losing positions           |                         |