V.15:1 (26-34): Developing Systems With a Rule-Based Approach by Jeffrey Owen Katz

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, I’ll 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 “data mining” — that is, empirically determining tradable rules. I’ll use rules to capture patterns that are tradable, and once the patterns are identified, formulate a set of rules that empirically trades well. I’m 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.