Kaufman Constructs Trading Systems

by Perry J. Kaufman

This is a step-by-step guide to developing a successful trading system for stocks and futures. Perry Kaufman is recognized as one of the leading developers and consultants in the financial industry, with a successful trading record that goes back 40 years. He is the author of "Trading Systems and Methods, 6th Edition," said to be the most definitive book in its field. "Kaufman Constructs Trading Systems" not only answer key questions about trading systems and development that were asked by attendees at his conferences, it takes the process to another level, giving more examples of systems and covering far more topics that are essential to success. It is published as an ebook so that it can be easily accessed worldwide. Readers will find a complete discussion of trends systems, mean reversion methods, and both daily and intraday trading systems. Mr Kaufman explains why certain markets are better for trend systems while others are best for mean reversion. He gives you a deep understanding of the principles that make systems profitable. He steps you through the entire process from the idea to the rules, from testing to deciding on the final model. There are two other valuable sections in this book. The first is the evaluation of risk, and ways to control it. Without proper risk control there can be no success. The second is determining stock or commodity selection when creating a portfolio. Years of experience have gone into the rules for stock selection, although they turn out to be very simple. This easy to read book will be a most valuable addition to your library to help you on the road to success.

367 pages, Kindle Edition

Published July 5, 2020

Reviews

[Braws]

thanks

[Jairo Fraga · Rating 4 out of 5]

Interesting book from this famous author. It has some good insights on how to build a stable trading system.

When optimizing, Kaufman says that when looking for a stable area range, we must consider that even if a 15 to 20 day moving average maybe it's not as stable as the difference between 190-200 day MA, there is a huge % difference between the former and the latter, meaning that 190-200 may get equal results just due to not having any additional trades, not because it's stable.

Unlike Brent Penfold, Kaufman prefers total up and down volatility to measure the strategy, I tend to agree more with Brent, as there is some possibility that your strategy deals good with the positive fat tails, and returns aren't normally distributed. Kaufman prefers Information Ratio, I prefer Calmar Ratio or Ulcer Performance Index instead of it.

There is a good method for sorting trending assets, by using the Kaufman Efficiency Ratio, to only trade the less noisy markets for trend strategies. I would still try to do a walk-forward on this backtest, to check if this method can be applied all the time or if the markets changes considerably.

Shows some strategies based on trends and also counter-trends, showing the importance of having multiple systems with low correlation each, and shows how withdrawals must be well thought, as you may risk getting a too small overall return.

There is a lot of content here, but I think there isn't a clear line of thought, with things placed here and there with no specific order, and we always wonder what's the next random chapter is about. A good book, but confusing and not well designed.

Estimated reading time: 9h