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Perry J. Kaufman writes extensively on markets and strategies. He began his career as a “rocket scientist,” first working on the Orbiting Astronomical Observatory (OAO-1), the predecessor of the Hubble Observatory, and then on the navigation for Gemini, later used for Apollo missions, and subsequently in military reconnaissance. In 1971, he became involved in the futures markets and has remained there. The earliest systematic programs used exponential smoothing and moving average trends, a technique developed in Aerospace for estimating the path of missiles.
In 1975, his company was bought by an agribusiness conglomerate in Illinois and he spent three years successfully developing and marketing commercial hedging services for large farmers. He then moved to New York, where he developed the most successful in-house commodity investment program for Prudential-Bache. At the same time, he co-founded The Journal of Futures Markets. From 1980 through 1991, Perry headed the systematic trading for Transworld Oil, Limited (Bermuda), which traded the largest proprietary account in futures markets in the world.
From 1992 to 1999, Mr Kaufman was a principal and Head of Research for Drapeau Advisors, a U.S. CTA focused on short-term trading. The company was sold to ED&F Man in 1998, to become Man-Drapeau Research, Pte (Singapore), after accumulating a nearly 3.0 Information Ratio. From 2000, Mr Kaufman’s consulting business served clients such as Cinergy’s proprietary trading group, Graham Capital Management, and Mizuho’s Alternative Investments.
One of the most successful stock timing programs is pairs trading, but the competition is fierce, the profits are small, and it takes a full-time commitment. Up to now, it’s been limited to professional traders. By applying the Stress Indicator and taking only the long side,...