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Alpha Trading: Profitable Strategies That Remove Directional Risk

ISBN: 978-0-470-52974-4
310 pages
March 2011
Alpha Trading: Profitable Strategies That Remove Directional Risk (0470529741) cover image


From a leading trading systems developer, how to make profitable trades when there are no obvious trends

How does a trader find alpha when markets make no sense, when price shocks cause diversification to fail, and when it seems impossible to hedge? What strategies should traders, long conditioned to trend trading, deploy? In Alpha Trading: Profitable Strategies That Remove Directional Risk, author Perry Kaufman presents strategies and systems for profitably trading in directionless markets and in those experiencing constant price shocks. The book

  • Details how to exploit new highs and lows
  • Describes how to hedge primary risk components, find robustness, and craft a diversification program
  • Other titles by Kaufman: New Trading Systems and Methods, 4th Edition and A Short Course in Technical Trading, both by Wiley

Given Kaufman's 30 years of experience trading in almost every kind of market, his Alpha Trading will be a welcome addition to the trading literature of professional and serious individual traders for years to come.

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Table of Contents


Chapter 1 Uncertainty.

Impact on Trading.

The Inevitable Price Shocks.

Why So Much About Price Shocks?

Complexity and Contagion Risk.

The Ugly Side.

Taking Defensive Action.

Accepting Performance for What It Is.

Chapter 2 The Importance of Price Noise.

Noise Explained.

Different Markets.

A Closer Look at Equity Index Markets.

Importance of Noise.

Determining the Strategy.

Capitalizing on the Trend of Noise.

Chapter 3 Pairs Trading -- Understanding the Process.

The Process.

The Basics.

Target Volatility.

Home Builders.

Using ETFs.

Portfolio of Home Builders Pairs.

Execution and the Part-Time Trader.


Trading Intraday.

Key Points to Remember.

Chapter 4 Pairs Trading Using Futures.


Mechanics of a Pairs Trade in Futures.

Inflation Scares.

Trading Energy Pairs.

Revisiting Momentum with Energy Markets.

A Mini-Portfolio of Natural Gas Pairs.

The Inflation Pairs: Crude, the EURUSD, and gold.

Equity Index Pairs.

Leveraging with Futures.

London Metals Exchange Pairs.

Volatility Filters.

Interest Rate Futures.


Chapter 5 Risk-Adjusted Spreads.

Dell and Hewlett-Packard.

Trading Both Long-Term (Hedged) Trends and Short-Term Mean Reversion.

Gold, Platinum, and Silver.

The Platinum/Gold Ratio.

Implied Yield.

The Yield Curve.

Trend Trading of London Metal Exchange Pairs.


Chapter 6 Cross-Market Trading and the Stress Indicator.

The Crossover Trade*.

The Stress Indicator.

Gold, Copper, and Platinum.

Mining Companies.

Agribusiness Pairs.

The Major Energy Producers.

Portfolio of Cross-Market Energy Pairs.

Other Opportunities.

Some Final Notes.

Chapter 7 Revisiting Pairs Using the Stress Indicator.

Futures Markets and the Stress Indicator.

Equity Index Futures.

Interest Rate Futures.

The Portfolio Spreadsheet.

Summary of Pairs Trading.

Chapter 8 Traditional Market-Neutral Trading.

Home Builders.

Trend or Mean Reversion?

Basic Market-Neutral Concept.

Volatility-Adjusting the Position Size.

Arbing the Dow: A Large Scale Program.

Thoughts About Market-Neutral Trend Following.

Market-Neutral Using Futures.

Market-Neutral Comments.

Chapter 9 Other Stat-Arb Methods.


System Briefs.

New Highs and New Lows.

Merger Arb.

Creating Your Own Index Arbitrage.

Arbing the Dow.

Arbing the S&P 500 -- Index Arbitrage.

About the Companion Web Site.

About the Author.


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Author Information

PERRY KAUFMAN has more than thirty years of experience in financial engineering and hedge funds, and is well-known for his role in algorithmic trading. Since 1971, he has specialized in the development of fully systematic trading programs in derivatives and equities as well as risk management and leverage overlays. He is the author of New Trading Systems and Methods, Fourth Edition, A Short Course in Technical Trading, both from Wiley, and other books and articles that have gained worldwide acclaim.
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“Whenever Perry Kaufman writes a new book . . .system traders take note. What separates Kaufman’s work from that of many other writers on trading strategies is that he goes into the nuts and bolts of designing and testing system candidates. . . The website that accompanies the book has spreadsheets that make the calculations necessary for setting up trades ever so much easier. . .  What Kaufman offers is different — essentially a do-it-yourself manual for the trader who wants to develop strategies that remove directional risk and unearth opportunities for creating alpha.” (Seeking Alpha)
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Alpha Trading: Profitable Strategies That Remove Directional Risk (US $80.00)

-and- The Risk of Trading: Mastering the Most Important Element in Financial Speculation (US $75.00)

Total List Price: US $155.00
Discounted Price: US $116.25 (Save: US $38.75)

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