NELSON FREEBURG – BUILDING A MECHANICAL TRADING SYSTEM FROM THE GROUND UP

Description:

Nelson Freeburg is editor of Formula Research, a monthly financial letter that builds systematic timing models for the futures, fixed income, cash, and stock markets. Nelson took up trading while pursuing a Ph.D. at Columbia University. Totally absorbed by the financial markets, Nelson left academia. He decided to let the markets, rather than the university, provide his education. He began publishing Formula Research in 1991 in order to share his findings with a small nucleus of professional traders.

Today, Formula Research serves hundreds of money managers and serious researchers in the cash and futures markets. Nelson’s subscribers include many of the leading names in global trading and finance. Nelson initially confined his research and trading to chart signals. When overall results proved poor, he began to examine point and figure, Elliott Wave, Market Profile, candlestick analysis, and an assortment of other technical theories. Nelson considers all of these methods deficient in their application because of their reliance on subjective judgement. In particular, Nelson feels that chart patterns become elusive in fast-paced, highly leveraged markets (such as cash foreign exchange) and that the clear buy and sell signals illustrated in textbooks rarely appear as clearly and reliably in practice.

To address these shortcomings, Nelson began testing the theories of leading technicians as well as his own theories against an extensive historical database covering a broad variety of traded market items. Nelson uses the financial database he built, which reaches back into the last century, to test systems in which he can examine clearly defined and precise mechanical buy and sell signals, devoid of subjectivity. Using these objective standards, Nelson can rigorously evaluate complex system features. Additional rules, such as the user’s profit targets and stop orders, or mental stop points, can further strengthen this testing process. As a result of his research, Nelson has developed an impressive number of advanced trading systems.