Kaufman Constructs Trading Systems

One phrase used by a well-known fund manager is, “Loose pants fit everyone.” I believe that. I want my trading method to work in as many different markets as possible, and over as much data as possible, and the more rules there are, the less likely that will happen. The problem is that “loose pants” look awful. In trading, it means that you will ta

was surprised that the government required fund returns to be calculated to ten decimal places when we got the men on the moon with two decimal places.” Perry Kaufman in an interview by Michael Covel

Loose Pants Fit Everyone. The more complex you get, the less chance your system will work. Limiting the number of rules may not look as good, but it’s more manageable and more likely to work.

Systems work on probabilities. Understand them, don’t ignore them.

For my own systems, when individual market volatility moves over 50%, I get out. For portfolio volatility, which benefits from better diversification, that threshold is closer to 30%.

the efficiency ratio, to measure how smoothly prices moved. It is the ratio of the difference between the first and last price (over n days), divided by the sum of the individual day’s moves, all values taken as positive numbers. Think about it in terms of a drunken sailor’s walk. A sailor leaves his ship sober. He walks straight to the nearest pub