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Trading Systems and Methods, 6th Edition

Perry J. Kaufman

ISBN: 978-1-119-60535-5 December 2019 1200 Pages

Hardcover
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€106.90
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Description

The new edition of the definitive reference to trading systems—expanded and thoroughly updated.

Professional and individual traders haverelied on Trading Systems and Methods for over three decades. Acclaimed trading systems expert Perry Kaufman provides complete, authoritative information on proven indicators, programs, systems, and algorithms. Now in its sixth edition, this respected book continues to provide readers with the knowledge required to develop or select the trading programs best suited for their needs. In-depth discussions of basic mathematical and statistical concepts instruct readers on how much data to use, how to create an index, how to determine probabilities, and how best to test your ideas. These technical tools and indicators help readers identify trends, momentum, and patterns, while an analytical framework enables comparisons of systematic methods and techniques. 

This updated, fully-revised edition offers new examples using stocks, ETFs and futures, and provides expanded coverage of arbitrage, high frequency trading, and sophisticated risk management models. More programs and strategies have been added, such as Artificial Intelligence techniques and Game Theory approaches to trading. Offering a complete array of practical, user-ready tools, this invaluable resource:

  • Offers comprehensive revisions and additional mathematical and statistical tools, trading systems, and examples of current market situations
  • Explains basic mathematical and statistical concepts with accompanying code
  • Includes new Excel spreadsheets with genetic algorithms, TradeStation code, MetaStock code, and more
  • Provides access to a companion website packed with supplemental materials

Trading Systems and Methods is an indispensable reference on trading systems, as well as system design and methods for professional and individual active traders, money managers, trading systems developers. 

Preface to the Sixth Edition

About the Companion Website

Chapter 1: Introduction

The Expanding Role of Technical Analysis

Convergence of Trading Styles in Stocks and Futures

Professional and Amateur

Random Walk

Deciding on a Trading Style

Measuring Noise

Maturing Markets and Globalization

Background Material

System Development Guidelines

Objectives of This Book

Profile of a Trading System

A Word about the Notation Used in This Book

A Final Comment

Chapter 2: Basic Concepts and Calculations 

A Brief Word about Data

Simple Measures of Error

On Average

Price Distribution

Moments of the Distribution: Mean, Variance, Skewness, and Kurtosis

Choosing Between Frequency Distribution and Standard Deviation

Measuring Similarity

Standardizing Risk and Return

The Index

An Overview of Probability

Supply and Demand

Chapter 3: Charting

Finding Consistent Patterns

What Causes the Major Price Moves and Trends?

The Bar Chart and Its Interpretation by Charles Dow

Chart Formations

Trendlines

One-Day Patterns

Continuation Patterns

Basic Concepts in Chart Trading

Accumulation and Distribution – Bottoms and Tops

Episodic Patterns

Price Objectives for Bar Charting

Implied Strategies in Candlestick Charts

Practical Use of the Bar Chart

Evolution in Price Patterns

Chapter 4: Charting Systems

Dunnigan and the Thrust Method

Nofri’s Congestion-Phase System

Outside Days and Inside Days

Pivot Points

Action and Reaction

Programming the Channel Breakout

Moving Channels

Commodity Channel Index

Wyckoff’s Combined Techniques

Complex Patterns

Automating Basic Chart Patterns

Chapter 5: Event-Driven Trends

Swing Trading

Point-And-Figure Charting

The N-Day Breakout

Chapter 6: Regression Analysis

Components of a Time Series

Characteristics of the Price Data

Linear Regression

Linear Correlation

Nonlinear Approximations for Two Variables

Transforming Nonlinear to Linear

Multivariate Approximations

Arima

Basic Trading Signals Using a Linear Regression Model

Measuring Market Strength

Chapter 7: Time-Based Trend Calculations

Forecasting and Following

Price Change over Time

The Moving Average

The Moving Median

Geometric Moving Average

Accumulative Average

Drop-off Effect

Exponential Smoothing

Plotting Lags and Leads

Chapter 8: Trend Systems

Why Trend Systems Work

Basic Buy and Sell Signals

Bands and Channels

Choosing the Calculation Period for the Trend

A Few Classic Single-Trend Systems

Comparison of Single Trend Systems

Techniques Using Two Trendlines

Three Trends

Comprehensive Studies

Selecting the Trend Speed to Fit the Problem

Moving Average Sequences: Signal Progression

Early Exit From a Trend

Projecting Moving Average Crossovers

Early Identification of a Trend Change

Chapter 9: Momentum and Oscillators

Momentum

Adding Volume to Momentum

Divergence Index

Visualizing Momentum

Oscillators

Double-Smoothed Momentum

Velocity and Acceleration

Hybrid Momentum Techniques

Momentum Divergence

Some Final Comments on Momentum

Chapter 10: Seasonality and Calendar Patterns

Seasonality Never Disappears

The Seasonal Pattern

Popular Methods for Calculating Seasonality

Classic Methods for Finding Seasonality

Weather Sensitivity

Identifying Seasonal Trades

Seasonality and the Stock Market

Common Sense and Seasonality

Chapter 11: Cycle Analysis

Cycle Basics

Uncovering the Cycle

Maximum Entropy

Short Cycle Indicator

Phasing

Chapter 12: Volume, Open Interest, and Breadth

Futures Volume and Open Interest

Extended Hours and 24-Hour Trading

Variations from the Normal Patterns

Standard Interpretation

Volume Indicators

Breadth Indicators

Is One Volume or Breadth Indicator Better than Another?

More Trading Methods Using Volume and Breadth

An Integrated Probability Model

Intraday Volume Patterns

Filtering Low Volume

Market Facilitation Index

Chapter 13: Spreads and Arbitrage

Dynamics of Futures Intramarket Spreads

Carrying Charges

Spreads in Stocks

Spread and Arbitrage Relationships

Risk Reduction in Spreads

Arbitrage

The Carry Trade

Implied Versus Historic Volatility

Changing Spread Relationships

Intermarket Spreads

Chapter 14: Behavioral Techniques

Measuring the News

Event Trading

Commitment of Traders Report

Opinion and Contrary Opinion

Fibonacci and Human Behavior

Elliott’s Wave Principle

Price Target Constructions Using the Fibonacci Ratio

Fischer’s Golden Section Compass System

W. D. Gann – Time and Space

Financial Astrology

Chapter 15: Short-Term Patterns

Projecting Daily Highs and Lows

Time of Day

Opening Gaps

Weekday, Weekend, and Reversal Patterns

Computer-Based Pattern Recognition

Artificial Intelligence Methods

Chapter 16: Day Trading

Impact of Transaction Costs

Slippage and Liquidity

Key Elements of Day Trading

Trading Using Price Patterns

Intraday Breakout Systems

High-Frequency Trading

Intraday Volume Patterns

Intraday Price Shocks

Chapter 17: Adaptive Techniques

Adaptive Trend Calculations

Adaptive Variations

Other Adaptive Momentum Calculations

Adaptive Intraday Breakout System

An Adaptive Process

Chapter 18: Price Distribution Systems

Accuracy is in the Data

Use of Price Distributions and Patterns to Anticipate Moves

The Importance of the Shape of the Distribution

A Purchaser’s Inventory Model

A Producer’s Selling Model

Steidlmayer’s Market Profile

A Fast Version of Market Profile

Chapter 19: Multiple Time Frames

Tuning Two Time Frames to Work Together

Displaying Two or Three Time Frames

Elder’s Triple-Screen Trading System

Robert Krausz’s Multiple Time Frames

Martin Pring’s KST System

Chapter 20: Advanced Techniques

Measuring Volatility

The Price-Volatility Relationship

Using Volatility for Trading

Liquidity

Trends and Price Noise

Trends and Interest Rate Carry

Fuzzy Logic

Expert Systems

Game Theory

Fractals, Chaos, and Entropy

Genetic Algorithms

Neural Networks

Machine Learning and Artificial Intelligence (A Summary)

Replication of Hedge Funds

Chapter 21: System Testing

Expectations

Selecting the Test Data

Testing Integrity

Identifying the Parameters

Searching for the Best Result

Chapter 22: Adding Reality

Some Computer Basics

The Abuse of Power

Final Steps before Launch

Extreme Events

Gambling Techniques—The Theory of Runs

Selective Trading

System Trade-Offs

Silver and Amazon—Too Good to Be True

Similarity of Systematic Trading Signals

Chapter 23: Risk Control

Mistaking Luck for Skill

Risk Aversion

Liquidity

Measuring Return and Risk

Position Sizing

Individual Trade Risk

Kaufman on Stops and Profit-Taking

Entering a Position

Leverage

Compounding a Position

Selecting the Best Markets

Probability of Success and Ruin

Managing Equity Risk

Ideal Leverage Using Optimal f

Comparing Expected and Actual Results

Chapter 24: Diversification and Portfolio Allocation

Diversification

Types of Portfolio Models

Classic Portfolio Allocation Calculations

Finding Optimal Portfolio Allocation Using Excel’s Solver

Kaufman’s Genetic Algorithm Solution to Portfolio Allocation (GASP)

Volatility Stabilization

Index