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New Trading Systems and Methods, Fourth Edition

Book Description

Get the bestselling guide to trading systems, now updated for the 21st century.

For more than two decades, futures traders have turned to the classic Trading Systems and Methods for complete information about the latest, most successful indicators, programs, algorithms, and systems. Perry Kaufman, a leading futures expert highly respected for his years of experience in research and trading, has thoroughly updated this bestselling guide, adding more systems, more methods, and extensive risk analysis to keep this the most comprehensive and instructional book on trading systems today. His detailed, hands-on manual offers a complete analysis, using a systematic approach with in-depth explanations of each technique. This edition also includes a CD-ROM that contains the TradeStation EasyLanguage program, Excel spreadsheets, and Fortran programs that appear in the book.

Note: CD-ROM/DVD and other supplementary materials are not included as part of eBook file.

Table of Contents

  1. Cover Page
  2. Frontmatter
  3. Title Page
  4. Copyright
  5. Dedication
  6. Frontmatter
  7. Contents
  8. Preface
  9. Acknowledgments
  10. CHAPTER 1: Introduction
    1. THE EXPANDING ROLE OF TECHNICAL ANALYSIS
    2. CONVERGENCE OF TRADING STYLES IN STOCKS AND FUTURES
    3. A LINE IN THE SAND BETWEEN FUNDAMENTALS AND TECHNICALS
    4. PROFESSIONAL AND AMATEUR
    5. RANDOM WALK
    6. BACKGROUND MATERIAL
    7. RESEARCH SKILLS
    8. OBJECTIVES OF THIS BOOK
    9. PROFILE OF A TRADING SYSTEM
    10. A WORD ABOUT THE NOTATION USED IN THIS BOOK
  11. CHAPTER 2: Basic Concepts
    1. ABOUT DATA AND AVERAGING
    2. ON AVERAGE
    3. PRICE DISTRIBUTION
    4. DISPERSION, SKEWNESS, AND KURTOSIS
    5. STANDARDIZING RETURNS AND RISK
    6. THE INDEX
    7. PROBABILITY
    8. SUPPLY AND DEMAND
  12. CHAPTER 3: Charting
    1. FINDING CONSISTENT PATTERNS
    2. WHAT CREATES THE MAJOR PRICE MOVES AND TRENDS?
    3. THE BAR CHART AND ITS INTERPRETATION BY CHARLES DOW
    4. CHART FORMATIONS
    5. TRENDLINES
    6. ONE-DAY PATTERNS
    7. CONTINUATION PATTERNS
    8. BASIC CONCEPTS IN CHART TRADING
    9. ACCUMULATION AND DISTRIBUTION—BOTTOMS AND TOPS
    10. EPISODIC PATTERNS
    11. PRICE OBJECTIVES FOR BAR-CHARTING
    12. IMPLIED STRATEGIES IN CANDLESTICK CHARTS
    13. PRACTICAL USE OF THE BAR CHART
    14. EVOLUTION IN PRICE PATTERNS
  13. CHAPTER 4: Charting Systems and Techniques
    1. DUNNIGAN AND THE THRUST METHOD
    2. NOFRI'S CONGESTION-PHASE SYSTEM
    3. OUTSIDE DAYS WITH AN OUTSIDE CLOSE
    4. ACTION AND REACTION
    5. CHANNEL BREAKOUT
    6. MOVING CHANNELS
    7. COMBINING TECHNIQUES
    8. COMPLEX PATTERNS
    9. A STUDY OF CHARTING PATTERNS
  14. CHAPTER 5: Event-Driven Trends
    1. SWING TRADING
    2. CONSTRUCTING A SWING CHART USING A SWING FILTER
    3. POINT-AND-FIGURE CHARTING
    4. THE N -DAY BREAKOUT
  15. CHAPTER 6: Regression Analysis
    1. COMPONENTS OF A TIME SERIES
    2. CHARACTERISTICS OF THE PRICE DATA
    3. LINEAR REGRESSION
    4. LINEAR CORRELATION
    5. NONLINEAR APPROXIMATIONS FOR TWO VARIABLES
    6. SECOND-ORDER LEAST SQUARES
    7. TRANSFORMING NONLINEAR TO LINEAR
    8. EVALUATION OF TWO-VARIABLE TECHNIQUES
    9. MULTIVARIATE APPROXIMATIONS
    10. ARIMA
    11. BASIC TRADING SIGNALS USING A LINEAR REGRESSION MODEL
    12. MEASURING MARKET STRENGTH
  16. CHAPTER 7: Time-Based Trend Calculations
    1. FORECASTING AND FOLLOWING
    2. THE MOVING AVERAGE
    3. GEOMETRIC MOVING AVERAGE
    4. DROP-OFF EFFECT
    5. EXPONENTIAL SMOOTHING
    6. RELATING EXPONENTIAL AND STANDARD MOVING AVERAGES
  17. CHAPTER 8: Time-Based Trend Systems
    1. WHY TREND SYSTEMS WORK
    2. BASIC BUY AND SELL SIGNALS
    3. BANDS AND CHANNELS
    4. APPLICATIONS OF SINGLE TRENDS
    5. COMPARISON OF MAJOR TREND SYSTEMS
    6. TECHNIQUES USING TWO TRENDLINES
    7. MORE THAN TWO TRENDS
    8. COMPREHENSIVE STUDIES
    9. SELECTING THE RIGHT MOVING AVERAGE 8
    10. MOVING AVERAGE SEQUENCES: SIGNAL PROGRESSION
    11. LIVING WITH A TREND-FOLLOWING PHILOSOPHY
  18. CHAPTER 9: Momentum and Oscillators
    1. MOMENTUM
    2. OSCILLATORS
    3. DOUBLE-SMOOTHED MOMENTUM
    4. VELOCITY AND ACCELERATION
    5. HYBRID MOMENTUM TECHNIQUES
    6. MOMENTUM DIVERGENCE
    7. SOME FINAL COMMENTS ON MOMENTUM
  19. CHAPTER 10: Seasonality
    1. A CONSISTENT FACTOR
    2. THE SEASONAL PATTERN
    3. POPULAR METHODS FOR CALCULATING SEASONALITY
    4. SEASONAL FILTERS
    5. SEASONALITY AND THE STOCK MARKET
    6. COMMON SENSE AND SEASONALITY
  20. CHAPTER 11: Cycle Analysis
    1. CYCLE BASICS
    2. UNCOVERING THE CYCLE
    3. MAXIMUM ENTROPY
    4. CYCLE CHANNEL INDEX
    5. PHASING
  21. CHAPTER 12: Volume, Open Interest, and Breadth
    1. A SPECIAL CASE FOR FUTURES VOLUME
    2. VARIATIONS FROM THE NORMAL PATTERNS
    3. STANDARD INTERPRETATION
    4. VOLUME INDICATORS
    5. BREADTH INDICATORS
    6. INTERPRETING VOLUME AND BREADTH SYSTEMATICALLY
    7. AN INTEGRATED PROBABILITY MODEL
    8. INTRADAY VOLUME PATTERNS
    9. FILTERING LOW VOLUME
    10. MARKET FACILITATION INDEX
  22. CHAPTER 13: Spreads and Arbitrage
    1. DYNAMICS OF FUTURES INTRAMARKET SPREADS
    2. SPREADS IN STOCKS
    3. SPREAD AND ARBITRAGE RELATIONSHIPS
    4. RISK REDUCTION IN SPREADS
    5. ARBITRAGE
    6. CARRYING CHARGES
    7. CHANGING SPREAD RELATIONSHIPS
    8. INTERMARKET SPREADS
    9. TECHNICAL ANALYSIS OF SPREADS
    10. LEVERAGE IN SPREADS
  23. CHAPTER 14: Behavioral Techniques
    1. MEASURING THE NEWS
    2. EVENT TRADING
    3. COMMITMENT OF TRADERS REPORT
    4. OPINION AND CONTRARY OPINION
    5. FIBONACCI AND HUMAN BEHAVIOR
    6. ELLIOTT'S WAVE PRINCIPLE
    7. PRICE TARGET CONSTRUCTIONS USING THE FIBONACCI RATIO
    8. FISCHER'S GOLDEN SECTION COMPASS SYSTEM
    9. W. D. GANN—TIME AND SPACE
    10. FINANCIAL ASTROLOGY
  24. CHAPTER 15: Pattern Recognition
    1. PROJECTING DAILY HIGHS AND LOWS
    2. TIME OF DAY
    3. OPENING GAPS AND INTRADAY PATTERNS
    4. THREE STUDIES IN MARKET MOVEMENT—WEEKDAY, WEEKEND, AND REVERSAL PATTERNS
    5. COMPUTER-BASED PATTERN RECOGNITION
    6. ARTIFICIAL INTELLIGENCE METHODS
  25. CHAPTER 16: Day Trading
    1. IMPACT OF TRANSACTION COSTS
    2. APPLICABILITY OF TRADING TECHNIQUES
    3. TRADING USING PRICE PATTERNS
  26. CHAPTER 17: Adaptive Techniques
    1. ADAPTIVE TREND CALCULATIONS
    2. ADAPTIVE MOMENTUM CALCULATIONS
    3. ADAPTIVE INTRADAY BREAKOUT SYSTEM
    4. AN ADAPTIVE PROCESS
    5. CONSIDERING ADAPTIVE METHODS
  27. CHAPTER 18: Price Distribution Systems
    1. MEASURING DISTRIBUTION
    2. USE OF PRICE DISTRIBUTIONS AND PATTERNS TO ANTICIPATE MOVES
    3. DISTRIBUTION OF PRICES
    4. STEIDLMAYER'S MARKET PROFILE
  28. CHAPTER 19: Multiple Time Frames
    1. TUNING TWO TIME FRAMES TO WORK TOGETHER
    2. ELDER'S TRIPLE-SCREEN TRADING SYSTEM 1
    3. ROBERT KRAUSZ'S MULTIPLE TIME FRAMES
    4. MARTIN PRING'S KST SYSTEM
  29. CHAPTER 20: Advanced Techniques
    1. MEASURING VOLATILITY
    2. Creating Your Own Filters
    3. TRADE SELECTION
    4. PRICE-VOLUME DISTRIBUTION
    5. TRENDS AND NOISE
    6. EXPERT SYSTEMS
    7. FUZZY LOGIC 9
    8. FRACTALS, CHAOS, AND ENTROPY
    9. NEURAL NETWORKS 15
    10. GENETIC ALGORITHMS
    11. CONSIDERING GENETIC ALGORITHMS, NEURAL NETWORKS, AND FEEDBACK
  30. CHAPTER 21: System Testing
    1. EXPECTATIONS
    2. IDENTIFYING THE PARAMETERS
    3. SELECTING THE TEST DATA
    4. SEARCHING FOR THE OPTIMAL RESULT
    5. VISUALIZING AND INTERPRETING TEST RESULTS
    6. STEP-FORWARD TESTING AND OUT-OF-SAMPLE DATA
    7. MASSIVE TESTING
    8. CHANGING THE STRATEGY RULES
    9. ARRIVING AT VALID TEST RESULTS
    10. POINT-AND-FIGURE TESTING
    11. COMPARING THE RESULTS OF TWO SYSTEMS
    12. PROFITING FROM THE WORST RESULTS
    13. RETESTING PROCEDURE
    14. COMPREHENSIVE STUDIES
    15. PRICE SHOCKS
    16. ANATOMY OF AN OPTIMIZATION 17
    17. A PLAN FOR ROBUSTNESS
  31. CHAPTER 22: Practical Considerations
    1. USE AND ABUSE OF THE COMPUTER
    2. PRICE SHOCKS
    3. GAMBLING TECHNIQUES—THE THEORY OF RUNS
    4. SELECTIVE TRADING
    5. SYSTEM TRADE-OFFS
    6. TRADING LIMITS AND DISCONNECTED MARKETS
    7. SILVER AND NASDAQ—TOO GOOD TO BE TRUE
    8. SIMILARITY OF SYSTEMATIC TRADING SIGNALS
  32. CHAPTER 23: Risk Control
    1. MISTAKING LUCK FOR SKILL 1
    2. RISK AVERSION
    3. LIQUIDITY
    4. MEASURING RETURN AND RISK
    5. LEVERAGE
    6. INDIVIDUAL TRADE RISK
    7. RANKING OF MARKETS FOR SELECTION
    8. PROBABILITY OF SUCCESS AND RUIN
    9. COMPOUNDING A POSITION
    10. EQUITY TRENDS
    11. INVESTING AND REINVESTING: OPTIMAL f
    12. COMPARING EXPECTED AND ACTUAL RESULTS
  33. CHAPTER 24: Diversification and Portfolio Allocation
    1. DIVERSIFICATION
    2. CLASSIC PORTFOLIO ALLOCATION CALCULATIONS
    3. PORTFOLIO ALLOCATION USING EXCEL'S SOLVER 2
    4. KAUFMAN'S GENETIC ALGORITHM SOLUTION TO PORTFOLIO ALLOCATION
  34. APPENDIX 1: Statistical Tables
    1. PROBABILITY DISTRIBUTIONS TABLES
  35. APPENDIX 2: Method of Least Squares
    1. OPERATING INSTRUCTIONS
    2. COMPUTER PROGRAMS
    3. LEAST-SQUARES SOLUTION FOR CORN VERSUS SOYBEANS
    4. LEAST-SQUARES SOLUTION FOR SOYBEANS ONLY
  36. APPENDIX 3: Matrix Solution to Linear Equations and Markov Chains
    1. DIRECT SOLUTION AND CONVERGENCE METHOD
    2. GENERAL MATRIX FORM
    3. DIRECT SOLUTION
    4. CONVERGENCE METHOD
  37. APPENDIX 4: Trigonometric Regression for Finding Cycles
    1. SINGLE-FREQUENCY TRIGONOMETRIC REGRESSION
    2. TWO-FREQUENCY TRIGONOMETRIC REGRESSION
  38. APPENDIX 5: Fourier Transformation
    1. FAST FOURIER TRANSFORM PROGRAM
  39. APPENDIX 6: Construction of a Pentagon
    1. CONSTRUCTION OF A PENTAGON FROM ONE FIXED DIAGONAL
    2. CONSTRUCTION OF A PENTAGON FROM ONE SIDE
  40. Bibliography
  41. About the CD-ROM
  42. Index