Developing Systems With a Rule-Based Approach by Jeffrey Owen Katz
This month, Katz discusses a trading system he developed using a rule-based approach.
Previously, I explored the development of simple rule-based trading systems. Specifically, I looked at a rule-based system that revolved around a theory, the thrust-retracement hypothesis, about how the market functions. This time, Iíll also explore rule-based trading systems, but rather than constructing a set of rules to reflect a hypothesis of market behavior, I will engage in ďdata miningĒ ó that is, empirically determining tradable rules. Iíll use rules to capture patterns that are tradable, and once the patterns are identified, formulate a set of rules that empirically trades well. Iím moving from hypothesis-based rule development to empirically based rule development, one step on the journey to the use of evolution-based techniques to create rule-based systems.