The Wilderness Tamed

Armed with this book, you will never get lost in today's jungle of technical analysis.
Publish date:

Trading Systems and Methods

is a one-volume encyclopedia of technical analysis. While it is not perfect -- no encyclopedia ever is -- there is enormous value in its concise-yet-thorough coverage of new and traditional subjects in the universe of technical analysis.

Perry J. Kaufman (, a longtime commodities trader who has been researching trading techniques since 1972 and who has written widely on this subject, is the ideal encyclopedist. He has extensive practical experience in asset management to bolster his book learning: Perry is a principal of

Man-Drapeau Research

, Singapore, which has some $225 million committed to futures and stocks for institutional investors. He is also president of

Strategic Market Systems

, an investment management and consulting company for institutional investors.

Encyclopedias have been with us for more than 2,000 years. The word originally meant a circle or a complete system of learning. But it came into modern usage only in 1772, when Denis Diderot, the great French encyclopedist, created the first modern multi-volume work.

Kaufman has resurrected the ancient notion of encyclopedia by combining the sum of our knowledge of technical analysis of finance in one volume that costs a mere $79.95. This remarkable book makes Perry Kaufman the Diderot of modern technical analysis.

It also poses a bit of a quandary: Kaufman's encyclopedic compression is not for beginners -- although beginners should buy this book for its incredible breadth. The reason is that you have to know something about trading to use it. Kaufman does not, for example, mention "pyramiding" in the index. But experienced traders will find the practice of using unrealized profits to increase the size of a position described in Chapter 23 under the heading "Compounding a Position."

This also creates some shortcomings. Kaufman's discussion of "optimal f," the optimal fixed fraction of an account that should be risked at any one time, also in Chapter 23, does not advise the reader just how important a topic this is. Kaufman the encyclopedist assumes that his reader already knows how important optimal f is, but needs only to refresh his memory or learn more, and to do so quickly.

Since the publication of his second edition of

Trading Systems and Methods

11 years ago, the trading world has embraced the explosion of computer technology, and Kaufman is right on top of it. His discussions of advanced techniques using fuzzy logic, fractals, neural networks and genetic algorithms are succinct summaries of the latest research, and how it can be applied to trading. But again, you need some background in computerized trading to digest everything he has to say.

Not everything is here. There is no mention of Henry Wheeler Chase's Economic Time, an arcane, but solid pattern recognition system, nor of Charles Drummond's Geometry, an obscure but highly effective charting methodology. But neither does the

Encyclopaedia Britannica

mention the British hydrologist H.E. Hurst who created the Hurst Exponent, which is so important for nonlinear pricing techniques.

But given the limitations inherent in all encyclopedias, Diderot would have been proud of Kaufman.

Trading Systems and Methods

could well be the single most useful book a trader can have.

Desmond MacRae is a New York based freelance journalist specializing in banking, finance and investments. He is a regular contributor to Managed Account Reports, Global Investment and Plan Sponsor. has a revenue-sharing relationship with under which it receives a portion of the revenue from Amazon purchases by customers directed there from