From the October 2013 issue of Futures Magazine • Subscribe!

Computerized technical analysis: History lessons

Floor to screen

Robert Pardo left Salomon Brothers in the fall of 1980 and entered a partnership with a floor trader who funded his research. The purpose was to develop trading floor buy/sell signal software using scalping numbers. 

Pardo realized the advantage of having a computer and a database that he could use to simulate the actual trading of the method over its history and see exactly what the strategy would have produced. He then spent the majority of his time coding and researching various trading ideas. To do that, Pardo developed a trading simulator with optimization capabilities. The interface was crude, but it was fast and capable and could use new data vendors such as CSI.

By the end of 1982, Pardo was looking for a way to earn income so he could continue his research. He started by developing a number of trading utilities and the first version of Chartist. He also marketed a family of products as CAT (Commodity Analysts Toolkit). Chartist was a quick and rather complete set of charting, support and resistance studies and indicators. At that time, most of the competition did not offer any support and resistance studies, so Pardo’s work offered an advantage. He claimed that all the tools were effective, but rather complex for the average trader.

Pardo then met Chicago Board Options Exchange trader Norman Winski around March 1983. Winski suggested that Pardo attend a popular trading show, where Pardo sold more than $3,000 of product. A new business was born.

Pardo also did some consulting work during those early years and a young trader approached him about coding a trading method. This method became the trading core of Swing Trader, which was introduced in late 1983 (see “Swinging for profits,” right). Later, he released Advanced Chartist bundled with Swing Trader and sold it for $1,395. Support is an issue for small companies selling backtesting software, and once Pardo started doing more trading, selling the software was no longer an effective use of his time. 

Early backtesting software developed in tandem with the technology of the time. It was a direct result of the availability of, first, the calculator and then personal computers. Fueled by the dream to understand the markets, engineers and early software developers turned to trading. Ultimately, however, their passions came full circle as they realized that marketing their analysis tools as commercial products was a viable supplement to personal trading activity.

The evolution of trading software did not stop there, though. Soon, technical innovations that allowed the automation of walk-forward testing, portfolio-based analysis and real-time trading would once again change how traders would interact with the markets. In our next installment, we’ll explore these developments and examine the lessons learned.

Murray A. Ruggiero Jr. is the author of “Cybernetic Trading Strategies” (John Wiley & Sons). E-mail him at ruggieroassoc@aol.com.

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About the Author
Murray A. Ruggiero Jr.

Murray A. Ruggiero Jr. is the author of "Cybernetic Trading Strategies" (Wiley). E-mail him at ruggieroassoc@aol.com.

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