Statistically Sound Machine Learning for Algorithmic Trading of Financial Instruments: Developing Predictive-Model-Based Trading Systems Using TSSB

First, I think it's important for anyone reading this review to have some understanding of the person who's writing it. I'm a semi-retired individual trader who works full time at this. I have an EE degree, like math & science (obviously) but have very little statistics background which, as we all probably know, is more and more important all the time. With that in mind please read on.First, as others have said, if you view this book combined with the software as a single purchase then personally I think it's hard to imagine a much better deal. As someone who's primarily a Linux Open Source user I'm used to getting 'free' software. I can tell you much of it comes with no support, no documentation and can chew up loads of time trying to figure it out. While the TSSB software doesn't cost any money to run on your system (or multiple systems) if you're someone with my sort of background you'll decide very quickly that valuing your own time even minimally the book isn't really that expensive even if you never end up using the software for anything other than a learning experience. However if you invest the time to learn what's here then I suspect you will ending up using TSSB. I believe I will. Beyond that the authors offer paid-for support for things you want to tackle with their help.OK, yes, much of the book is just a software manual documenting all the command you can use in TSSB scripts. However, there's a LOT of additional writing in the book that happily is quite readable. The authors are to be commended for taking the time to make the software approachable to traders that don't necessarily have their level of statistical expertise. (I.e. - ME!) There's a lot of information in here I've run into before, but there's probably more info that I haven't gotten into but have been able to generally understand using Wikipedia and other free sources. As with all of these things YMMV.As best I can tell so far the way the book approaches trading system development is well thought out and, coming from a background of TradeStation/EasyLanguage, R & more recently MatLab, TSSB itself has a lot to offer that aren't easy or inexpensive to do in those tools. First, trading systems are developed across many markets with the means to trade only a percentage of the markets at any given time. TSSB facilitates finding indicators that work well, or at least similar, in multiple markets. It supports developing more types of trading models than I'm likely to use in the next year or two. It has built in walk-forward testing at the day, month and yearly level and there are likely ways to use other periods. Best of all so far the software seems quite stable and reasonably fast. I've just completed a 13 year monthly walk-forward on 88 markets using CPU-based processing in about an hour. TSSB supports GPU-processing but I haven't tested it yet.Lest I be accused of gushing let me also be clear about what are likely to be issues for some. First, TSSB is not a trading platform and actually there isn't a direct path to get TSSB models into EasyLanguage or R without considerable work on the user's part. (Read the TSSB website for more on that) Getting TradeStation data into TSSB wasn't hard but did require that I write my own EL indicator to get it formatted correctly. I want to thank the authors for their support getting past that hurdle. Depending on where you get your data this may be an issue for you.Next, as you'll learn if you dig into TSSB, the indicators in TSSB have considerable intellectual property in them which isn't made available to the user. (At least not as code that you could use anywhere else.) What this means to me is that for now my models in TSSB must remain in TSSB which doesn't easily support automated trading. However TSSB does support reading in and studying indicators I have written in EasyLanguage and, if they work well, would begin to reveal a path toward automated trading down the road. Not direct, and not easy, but that wasn't a purchase requirement for me at all. Again, YMMV.As there is no officially supported 'user's group' of any kind I've created a Google Group where other people interested in TSSB might join me for conversations. This is completely unofficial and no one should look for support from TSSB's authors in this forum. Search it out on Google Groups if you're interested.If you're considering purchasing this book I'd recommend going through the free Kindle preview in depth. It as some scripting code that will give you a good feel for whether these tools are for you. Run the code - it works - and study the results. If you purchase the book I'd recommend and your an organized individual then you may want to jump to the end of the book to the section entitled 'Developing A Stand-Alone System' and working through what is presented there. This will lead you to read about commands you need them but will also start to reveal more of what TSSB can do.For now TSSB is, for me, a way to study what indicators to use, what markets to use them on and when to potentially trade or not trade. I'm happy with that but you may or may not be. That's up to you.

Let me start this review by stating that at this point I have only limited experience using the TSSB software. So I'm not yet in a position to offer a credible review of the program, that will have to wait until later. But until then, let me offer some comments on the book, which is really what you are buying here, since the software is available for free downloading.Originally I was a little skeptical about paying an amount in the $120 range for a book. But what got me over that were two things: first, I had bought David Aronson's earlier book, Evidence Based Technical Analysis, and I loved the scientific rigor and creative thinking that he evidenced there. And secondly, I figured that if I looked at this book and the TSSB software as a package (which they are obviously intended to be), $120 is dirt cheap for almost any kind of trading software, let alone for a program that claims to be able to do what this one does.So I bit the bullet and ordered the book, it has turned out to be well worth the money, without even considering the software. The reason is the wealth of insights that Aronson and Masters supply throughout the book. If you are (or want to be) a successful systemic trader that uses sophisticated models to generate your trading signals, then I believe that this book is no less than required reading.Some of the topics that you will find addressed in this text include the following:- What are the reasons to use walk-forward testing over cross-validation in testing your model's performance?- Why are low (or even negative) values of R-squared perfectly fine for trading models?- Where is the best predictive information found in a predictive variable?- How can you use synthetic (permuted) market data to validate your models?- Is it better to have a strong model that uses weak predictive variables, or the reverse, and why?- How do developers of modern trading systems select the most effective predictors from among a set of candidates?- If I'm building models to trade at tomorrow's open and exit at tomorrow's close, how far back should my predictive data extend? 5 days? 20 days? 100 days?- Why is visual examination of a time-series plot of every predictor mandatory?- How important are committees in modern trading system design?- Are you better off having a single model for long and short trades, or should you have specialized models for each?- In addition to normal development of a model by partitioning the test data into out-of-sample and in-sample sets, what are five reasons why you sometimes might want to also try developing the model using all the data as in-sample, without saving any data for testing?After reading this book, you will have the knowledge to determine if your trading system meets the following two conditions: a) the chances that it has good performance just due to being lucky are small, and b) you know what the expected level of future performance is, and it is good enough to make it worth trading. And honestly, if you have that knowledge, you are probably ahead of 99% of the traders in the market today. (that's just my opinion, not the authors')As loaded with powerful information as this book is, I do have a few quibbles. The quality of the writing is very good, but I do think it could have used more editing, specially in getting the material organized a little better. And there are a couple of places where it is mentioned that there is the need for additional material, which will be included in a forthcoming edition of the book, which I found a little disconcerting.But overall, if you are a serious system trader or developer (or both), I believe that you owe it to youself to thoroughly read and study this book. I think you will find it contains many important and useful insights that you won't find elsewhere. These are the kinds of things that can make a difference between a middling trading system and an outstanding one. Even more importantly, they can give you a high degree of comfort that you can rely on your trading system, which in my experience, is worth its weight in gold.

I like the book but it is not what I expected. First to be clear this books main focus is TSSB which is a great concept but the software leaves much to be desired. Many of the indicators and systems mentioned in the book can't be used live because the author doesn't give you the source code for the indicators, just high level descriptions. TSSB does not support live trading so it serves as a tool which is useful for examples but nothing more. The ideas in this book however are very valuable and quite useful if you are able to build your own trading platform. You will lack some of the results mentioned in the book due to the lack of indicators (FTI for example) but this provides a nice foundation.

There is very little maths in this book. It is a tutorial on how to use the software TSSB, but you don't need to buy the book alone for that reason. It has useful ideas on how to engineer features you may not have considered before. That you won't find in other quantitative trading books. You buy it because it gives you a basic framework for how to use statistical learning prediction models to make trading strategy decisions. Filtering/boosting on existing trades (Ch 3) is also an interesting topic to consider in your tool kit for trading modeling building.Lots of interesting aspects on feature engineering using price data alone, and the discussion on ensemble methods for prediction is useful.Interesting approaches suggested for feature normalisation.

The first time I read this book, it was mind boggling! I thought wtf. The second time I read the book more carefully and it was again mind boggling: whoa. I had to realize how many things swirling around in mind was brought to a point, how much I learned in one weekend and even more important: to stand on the shoulders of giants and see how much I can still learn. Definitely I will read the book once more! It has been worth even cent and every minute invested in it.Brian

The book is a must if you want to use the free trading evaluation program tssb. The overlapping capacity and the combinations of statistics, machine learning and trading makes the program much better in finding and evaluating trading strategies than special trading programs like Metatrader or more general programs like Matlab.You evaluate with scripting. It means that it is much easier to use than Matlab, SAS, Metatrader, Tradestation etc etc.Your focus can now be on what the result means instead of how to code it.The program is full of possibilities. The future is Machine Learning and the tools in the program and the advises about what's useful saves a lot of time!There is no other software anywhere for any price that does the statistical verification and testing that this program does.David Edberg

Anyone who builds automated trading systems needs to read this book.Depth and breadth in abundance, all the usual bases are covered. And more importantly, a lot of the unsual bases too.these being the steps and stuff which we either skip or were shamefully and blissfully unaware of !Too many books focus on models and their endless flavors. Here, the technical focus is on your data, your indicators.It's a very good read, but it's not a flick-through or a book to be skimmed. The software alone is worth the price with some zeros appended in time-saved alone.Take your time over this one, benefit from 2nd and 3rd order insights.

Das Buch ist sehr gut!Ich habe es bereits zum zweiten Mal durchgearbeitet und konnte mir nochmals einige wichtige Erkenntnisse erarbeiten. Allerdings ist dieses Buch nicht für einen Einsteiger geeignet, da hier teilweise Konzepte nicht erklärt, sondern vorausgesetzt werden.Wenn man jedoch eine solide Grundlage in Bereichen wie Statistik, Ökonometrie oder auch im algorithmischen Handel hat, dann ist dieses Buch jeden Cent wert!