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A recent post by Brent included this comment:
"I got a copy of Perry Kaufman's Trading Systems and methods from my
library. I was surprised how much this book covers. It makes me realize that
almost every conceivable angle has been covered in the pursuit of trading."
I must aver. I have a friend who manages over $100 m in a fund that has
clients including Coca Cola's pension plan. My friend has a Ph.D. in math,
specializing in statistics. He makes his investment decisions strictly on
statistical analysis. I can never get him to describe specifics other than
trades he is making. But some conversations have been borderline in
allowing me to see inside his "box".
His statistical methods allow him to switch between what we might describe
as "trend following" to "fading the trend" strictly based on his
probabilistic calculations. He would describe his fading trades as "waiting
for the price to be in the tail of a probability distribution."
When I discuss standard technical analysis indicators to him such as RSI or
Bollinger Bands that might give the same buy/sell signal, he listens but not
with great interest. He claims to have negligible knowledge of technical
analysis and wants to remain that way. Perhaps a personal choice, perhaps a
business choice since many pension fund managers view technical analysis as
voodoo.
Although I haven't read Perry Kaufman's book, I'd be surprised to see a
purely statistical method in the book. I haven't seen a purely probability
and statistical based method described anywhere, and my study includes an
MBA in Finance as well as many years interest and use of technical analysis.
One reason for this post is to ask any RTs have they seen or read of any
methods based purely on probability and statistics? (I don't include Curtis
Arnold's PPS in this category since that does rely on pattern recognition, a
standard technical analysis category).
A second reason is to try to open further debate. Anyone else seen or heard
of methods "outside of the box" of methods that technicians or
fundamentalists are familiar with?
P.S. No flame intended. Brent used excellent etiquette by saying "almost
every conceivable angle." My belief is that there are many new angles to
be discovered. Unfortunately, many traders are secretive (including my fund
manager friend) and don't reveal their "new" approaches.
Ross Kovacs
rossrk@xxxxxxxxxxxxxx
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