V13:06: (260-268): Perry Kaufman On Market Analysis by Thom Hartle

V13:06: (260-268): Perry Kaufman On Market Analysis by Thom Hartle
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V13:06: (260-268): Perry Kaufman On Market Analysis by Thom Hartle

Perry Kaufman began his career in the field of trading and market research in 1971. Since then, he has been a money manager, consultant and author of six books, including the popular Commodity Trading Systems and Methods. His most recent book, Smarter Trading, presents his perspective of the key issues in trading and designing systems. Today, he writes and edits the quarterly report "Kaufman on Market Analysis," which he publishes from his farm in Vermont. STOCKS & COMMODITIES Editor Thom Hartle interviewed Perry Kaufman via telephone on March 28, 1995, about how markets evolve, ways to manage risk, designing a trading system and his views on the use of computers to validate trading strategies.

Q: Perry, you were one of the first to use computers to develop trading strategies for the markets. How did you get started?

A: Back then, the technology wasn't easily accessible and there really wasn't anyone doing computer research. I had the computer background and a company I had formed in 1969 that provided medical billing for Medicare. In late 1970, I was approached by the principals of an options firm to develop a trading strategy to hedge options. These people had contacted IBM and a couple of the larger Wall Street firms about the problem of hedging options risk, but no one would have anything to do with it. They were told it was too specialized, so they searched around for an independent firm to do it. It seemed interesting to me, so we started doing research on the subject. Of course, back then, it was very difficult to even find data for testing ideas.

Q: So what did you use for data?

A: Dunn & Hargitt had the only reliable database at that time, but it still needed some cleaning. We started with that database and a couple of ideas and just kept working at it and eventually developed a program - just in time for the client who had approached us in the first place to go out of business! But along the way we were introduced to other people who wanted trading strategies, and we wound up making it into a business.

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