Modeling maximum trading profits with C++ : new trading and money management concepts

"Mr. Salov has taken one of my favorite creations - Perfect Profit - and provided an expanded description of his interpretation of it and put it in your hands with the included software. Like I said fifteen years ago, Perfect Profit is an important tool for the trading system developer. See for yourself."
-- Robert Pardo , President, Pardo Capital Limited

"A very in-depth reference for programmers that should serve well into the future. The code herein lends itself well to other syntactically similar programming languages such as Java, PHP, and C#."
-- Ralph Vince

The goal of trading is to make money, and for many, profits are the best way to measure that success. Author Valerii Salov knows how to calculate potential profit, and in Modeling Maximum Trading Profits with C++, he outlines an original and thought-provoking approach to trading that will help you do the same.

This detailed guide will show you how to effectively calculate the potential profit in a market under conditions of variable transaction costs, and provide you with the tools needed to compute those values from real prices. You'll be introduced to new notions of s-function, s-matrix, s-interval, and polarities of s-intervals, and discover how they can be used to build the r- and l-algorithms as well as the first and second profit and loss reserve algorithms. Optimal money management techniques are also illustrated throughout the book, so you can make the most informed trading decisions possible.

Filled with in-depth insight and expert advice, Modeling Maximum Trading Profits with C++ contains a comprehensive overview of trading, money management, and C++. A companion website is also included to help you test the concepts described throughout the book before you attempt to use them in real-world situations.

Author Notes

Valerii Salov, PhD, is Vice President and Director of Financial Product Development for Toolkit at NumeriX LLC

Preface	p. xi
Acknowledgments	p. xiii
Chapter 1 Potential Profit as a Measure of Market Performance	p. 1
Profit and Potential Profit	p. 1
Price Flow and C++	p. 4
Why C++?	p. 4
Why Skip Date and Time Classes?	p. 4
Vector for Price Flow	p. 5
Classes for Prices	p. 5
Procedural Programming	p. 7
Object-Based and Generic Programming	p. 8
Example Test1.cpp	p. 11
Object-Oriented Programming	p. 12
Exception Safety	p. 16
Production of Concrete Objects	p. 16
Pardo's Potential Profit	p. 17
Simple Algorithm for a True Reverse System	p. 17
The Program Computing Pardo's Potential Profit	p. 18
Conclusions	p. 20
Chapter 2 Potential Profit and Transaction Costs	p. 21
What Is a Trading Strategy?	p. 21
Properties of Potential Profit Strategy	p. 24
"Do Nothing" Strategy	p. 24
Property 1 p. 24
Property 2 p. 24
Property 3 p. 24
Property 4 p. 25
Property 5 p. 27
Property 6 p. 28
Transaction Costs	p. 28
Commissions	p. 28
Slippage	p. 28
The Bid/Asked Spread	p. 30
The Total Transaction Cost	p. 31
Transaction Costs and C++	p. 32
Profit-and-Loss Function	p. 34
The Main Equations	p. 34
C++ Implementation	p. 35
Example Test2.cpp	p. 36
Conclusions	p. 38
Chapter 3 R- and L-Algorithms for Maximum Profit Strategy	p. 39
S-Function and S-Matrix	p. 39
Definition 3.1 S-Function	p. 39
Definition 3.2 S-Matrix	p. 40
S-Interval and Its Boundaries	p. 40
Definition 3.3 S-Interval	p. 40
Definition 3.4 S-Interval with the Right-most Boundary	p. 40
Definition 3.5 S-Interval with the Left-most Boundary	p. 40
Definition 3.6 S-Interval with the Left-most and Right-most Boundaries	p. 40
The Best Buying and Selling Points on the S-Interval	p. 41
Polarity of S-Intervals	p. 41
Definition 3.7 Right Polarity	p. 41
Theorem 3.1 p. 41
Definition 3.8 Left Polarity	p. 42
Theorem 3.2 p. 42
R-Algorithm	p. 42
L-Algorithm	p. 44
C++ Implementation	p. 44
Coding The R- and L-Algorithms	p. 44
Example Test3.cpp	p. 48
C++ Program Evaluating Potential Profit	p. 51
Conclusions	p. 54
Chapter 4 Money Management and Discrete Nature of Trading	p. 55
Denominations	p. 55
Induction and Trading Account Size	p. 58
Growth Function and Optimal B	p. 59
Discrete Nature of Trading	p. 62
Evolution of Account with Constant A[subscript w], A[subscript l], M, b	p. 62
Evolution of Account with Nonconstant A[subscript w], A[subscript l]	p. 71
Conclusions	p. 79
Chapter 5 Money Management for Potential Profit Strategy	p. 81
The Best Allocation Fraction for Potential Profit Strategy	p. 81
Self-Financing Restriction	p. 83
Minimal A[subscript 0]	p. 83
Actions and Positions Test4.cpp	p. 87
The First and Second P&L Reserves	p. 89
Rules for Offsetting Positions	p. 92
Classes Trade and Trades	p. 92
Class Position	p. 95
Using Position and Trades Test5.cpp	p. 100
Conclusions	p. 104
Chapter 6 Best to Better	p. 103
Algorithm for the First Profit-and-Loss Reserve Strategy	p. 105
Algorithm for the Second P&L Reserve Strategy	p. 109
Program Applying Three Algorithms	p. 118
Conclusions	p. 122
Chapter 7 Direct Applications	p. 123
Only in the Past	p. 123
What Are Traders Actually Doing and How Are They Doing It?	p. 123
A Word on Human Intuition	p. 124
What and How Are Academicians Doing?	p. 125
The Bridge	p. 127
Collapse of the Theory?	p. 128
A Word on Potential Profit and Strategy	p. 130
Sleeping Beauty	p. 130
Application to Tick Price Data	p. 130
Application to Daily Price Data	p. 144
War and Peace	p. 147
Conclusions	p. 149
Chapter 8 Indicators Based on Potential Profit	p. 151
Performance Measures and indicators	p. 151
Profit Performance of a System	p. 151
Performance of a System Defined as Return on Capital	p. 152
Comparing Single-Market Performance	p. 152
Comparing Markets	p. 153
Moving Versions of Strategies	p. 153
Relationship to Trend and Volatility	p. 153
Reversal Points and Events Filter	p. 154
Increasing Position Points	p. 155
Options on Potential Profit	p. 155
Strategy Evaluation	p. 156
The Evaluation Algorithm	p. 156
Example Test8.cpp	p. 160
Class Distribution	p. 162
Conclusions	p. 169
Chapter 9 Statistics of Trades and Potential Profit	p. 171
Statistical Properties of Trades	p. 171
Selection	p. 171
Implementing One by One	p. 174
Program Evaluating Strategy and Trades	p. 183
Input Format	p. 183
The Program Evaluate.cpp	p. 184
Application of Evaluate.cpp to SK05	p. 189
Conclusions	p. 193
Chapter 10 Comparing Markets	p. 195
Time Frame and Prices	p. 195
Selected Contracts	p. 195
Data File Format	p. 196
Results of Applications of Maxprof3 and Evaluate	p. 196
CH06	p. 196
SH06	p. 199
WH06	p. 201
LCG06	p. 202
GCG06	p. 204
HGH06	p. 206
CCH06	p. 207
KCH06	p. 209
SBH06	p. 211
CTH06	p. 213
LBH06	p. 214
CLH06	p. 216
USH06	p. 218
SPH06	p. 220
Multimarket Potential Profit Algorithms	p. 222
Epilogue	p. 223
Conclusions	p. 223
Bibliography and Sources	p. 225
About the CD-ROM	p. 229
Index	p. 233

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