Professional Stock Trading: System Design and Automation

By Mark Conway and Aaron Behle

Quick Summary

Mark Conway and Aaron Behle present a systematic approach to stock trading system design, from concept development through coding and automation. The book covers pair trading, pattern recognition systems, market modeling, day trading techniques, and complete trading system implementation in TradeStation. It bridges the gap between trading ideas and executable code, providing both the theoretical foundation and practical tools for building automated trading systems.

Executive Summary

"Professional Stock Trading" is a technical manual for developing automated trading systems. The authors approach trading as an engineering problem, presenting systematic methods for designing, coding, testing, and deploying trading systems. The book covers multiple trading approaches including pair trading (exploiting price divergences between correlated securities), pattern trading (systematic identification and exploitation of price patterns), and market modeling (creating composite indicators from multiple data sources). The culmination is a complete trading platform implementation in TradeStation's EasyLanguage, including money management, position management, and a full set of trading systems.

Core Thesis

Trading can be approached as an engineering discipline, where ideas are formalized into testable hypotheses, coded into algorithms, validated against historical data, and deployed as automated systems. The evolution of trading from art to science is driven by the integration of programming, statistical analysis, and real-time data processing.

Key Concepts and Terminology

• Pair Trading: Simultaneously buying and selling correlated securities when their price relationship diverges from historical norms
• Spread Bands: Statistical boundaries around a pair spread that trigger trading signals
• Trading Model: A comprehensive framework including portfolio management, trade management, and multiple trading systems
• Trade Filters: Conditions that must be met before a trading signal is acted upon, improving system selectivity

Practical Applications

1. Design trading systems using a structured framework: concept, rules, code, test, deploy
2. Implement pair trading strategies using statistical spread analysis
3. Build pattern recognition systems that identify recurring price structures
4. Create market models that combine multiple indicators and systems
5. Automate trading execution using TradeStation's EasyLanguage

Critical Assessment

The book provides excellent technical depth for system developers working in TradeStation. The pair trading and pattern recognition sections are particularly strong. However, the reliance on TradeStation-specific code limits the book's applicability for traders using other platforms. The book also predates many advances in quantitative trading and may benefit from updated methodologies.

Conclusion

"Professional Stock Trading" is a valuable technical resource for traders seeking to automate their trading approach. Its engineering-oriented methodology and complete code implementations make it a practical guide for system development.