Reviewed by Ed Dobson, President, Traders Press, Inc.
I find few things more gratifying than reading a book that is intelligently written and imparts practical knowledge on the difficult task of extracting profits from the marketplace. Perry Kaufman's Smarter Trading rates high on the short list of books that I would place in this category. Two books, which I have previously reviewed and which shall remain nameless, struck me as very intelligently written, yet they taught me nothing that I felt would prove to be practical for use in trading Euros or soybeans next week. Two others, Gallacher's Winner Take All (now, unfortunately, out of print) and Elder’s Trading for a Living, stand out as two of my own favorites and are among my standard recommendations to new traders.
The primary focus of this book is the factors to be considered and procedures to be followed in the development of a sound, robust trading strategy that should prove profitable over a wide range of rapidly changing market conditions. Readers of this column have undoubtedly bought, or contemplated buying, trading systems that show tantalizingly impressive results.
After reading this book, they will be, in my opinion, far better qualified to make intelligent and well informed decisions about which systems are likely to prove profitable in actual trading, as opposed to the hypothetical results that are typically the basis on which most systems are advertised and purchased. Likewise, those who are inclined to develop their own trading systems will gain valuable knowledge and insight into the factors that should be considered when designing a system.
Kaufman makes the reader aware of the many sweeping changes that have taken place in markets in recent years, which often translate into "methods that used to work but no longer do". Changes in technology have made market awareness and education far more widespread among the investing public than ever before. Normal seasonal patterns in commodities have changed greatly (opposite-season supplies of soybeans and OJ from Brazil, for example). Kaufman's conclusion: "To forecast successfully is to accept the inevitability of change and the risks associated with it. You cannot assume that the future will be the same as the past, that the risks and profits and patterns will repeat themselves."
Many difficulties associated with successful trading are explained, such as "unables", execution problems and slippage. The importance of reasonable expectations and learning what is most likely to happen are emphasized. Several of the "tried and true" maxims of conventional trading wisdom are challenged: Kaufman shows how the use of stop-loss orders may actually increase rather than decrease risk, and he advocates profit-taking objectives and rules in lieu of "letting profits run" until the trend changes.
You learn about "price shocks", which represent the "ultimate risk" and "which cause the ruin of more traders than any other problem", and how to plan for them and deal with them when they occur. Today's sophisticated trading technologies, such as fuzzy logic, neural networks and expert systems are explained. Considerable attention is given to the quality of being robust (ability of a trading strategy to succeed under many conditions) and how to test for and incorporate it into your own system. The reader is taught how to use sound procedures and statistical methods to develop a strategy.
Despite lots of math and statistical analysis techniques, the book is written in such a clear and readily understood style that even this math-challenged trader felt right at home with all the concepts. This is a book that makes you think. I believe it will become the standard reference on the development of a trading strategy.
Additional details and table of contents may be viewed at this link: http://www.traderspress.com/detail.php?PKey=462
Review by
Edward Dobson, President
Traders Press, Inc.
Greenville SC
