Kaufman’sMost Popular Books (available on Amazon)
Trading Systems and Methods, 6th Edition. The complete guide to trading systems, with more than 250 programs and spreadsheets. The most important book for a system developer.
Kaufman Constructs Trading Systems. A step-by-step manual on how to develop, test, and trade an algorithmic system.
Learn To Trade. Written for both serious beginners and practiced traders, this book includes chart formations, trends, indicators, trading rules, risk, and portfolio management. You can find it in color on Amazon.
You can also find these books on our website, www.kaufmansignals.com.
Blogs and Recent Publications
Find Mr. Kaufman’s other recent publications and seminars at the end of this report. We post new interviews, seminars, and reference new articles by Mr. Kaufman each month.
SEPTEMBER Performance in Brief
A pleasant surprise for stock picking in September. Every portfolio did well, from the benchmark Trend stocks, up 16%, and the High-Risk up 28%. The Weekly Trend gained another 2% in the first two days at the end of the month, bringing it close to the Daily Trend returns.
This is no doubt a strange market. On again-off again for tech stocks, and concerns over the government shut-down driving the dollar down and gold up. But these dynamics can change overnight. What seems consistent is the news about artificial intelligence, or at least those stocks! While volatile, they seem to be hanging in there.
Major Equity ETFs
It doesn’t seem that a ¼ cut in interest rates, or the likelyhood that another ¼ or ½ point cut is likely, would cause the market to rally. One would have thought it was all in the market, given the rally from May. But the tech stocks are overwhelming the index markets, and the S&P and Nasdaq are highly correlated.
The small caps (IWM) have been credited with moving the market, but that’s hard to see. They are clearly not gaining at the same rate as the other equity index markets. For now, we have no idea where this rally is going, but giving our performance this month, we’ll stay with it.
CLOSE-UP: Delaying the Entry
The good thing about entries is that you can wait for the best point to enter. My experience with exits is the opposite. The sooner you’re out, the better.
But perhaps I’m glamourizing entries. Waiting for the perfect entry sounds good, but do the returns justify it? In a previous study, I’ve looked at intraday pullbacks. The result was that a small pullback helped most of the time, but when prices didn’t pullback, you lost all of the advantage and missed the best trades.
This time we’re going to look at three conditions:
- Entering on the close
- Entering on the next open (for stocks)
- Entering on the next close
In addition, we’ll look at both a trend system and a mean reversion system. Mean-reversion can be risky, and entering a bit later might improve results. Note that there is no “open” for futures. Futures actually opens 30 minutes after the close, so you could execute a small closing order when it starts trading again. Prices should be much the same. Then for futures we will only look at today’s close and tomorrow’s close.
The Systems: Trend and Mean-Reversion
For the trend system we’ll use an optimized moving average over the past 10 years. We’ll go long when the moving average goes up and short when it goes down. Positions are sized as the investment divided by the previous closing price. The investment is $10,000.
For the mean-reversion system, we’ll take advantage of market noise by fading a short-term moving average in the direction of the long-term average. For example, if we are long a 100-day average and we get a short signal in an 8-day average, we buy instead of selling. So we are always trading in the direction of the long-term average. To be sure we are buying and selling at a good point, we use a 10-day slow stochastic with a threshold of 20 for buying and 80 for selling. We optimized the two moving averages, but always kept the stochastic the same. It’s a simple mean-reversion system but I think it satisfies our need.
For futures, we use volatility parity for the position size, the investment divided by the product of the average true range (20 days) times the conversion factor (big point value). The investment for futures is $100,000 because of the high value of BTC. We allow for decimal contracts to avoid rounding.
The Markets
For stocks we will look at Apple (AAPL), Bank of America (BAC), Robinhood (HOOD), Nvidia (NVDA), and the Nasdaq ETF (QQQ). We’ll use only 10 years, from 2015.
For futures we’ll use Bitcoin (BTC), the Euro currency (CU), the long bund (EBL), gold (GC), Nasdaq (NQ), and the U.S. 10-year Note (TY).
We will use all of those markets for both the trend and mean-reversion strategies. That will allow us to compare the results. However, there will be a lot of tables to look at.
Results of the Trend Strategy: Stocks
I’m not going to show the results of selling short stocks using the trend system. None of the markets had positive results. I thought it was surprising that all but NVDA showed the best results at 10 and 20-day moving averages. When I test longer periods, say from 2000, we tend to get values of 110 days, much like Nvidia. It means that staying long is the best strategy.
But with a faster moving average, we can see more trades and decide whether a delay is a good approach. Table 1 shows detailed statistics on long-only trades for stocks.
Table 1. Statistics for long-only stock trades from 2015.
As you can see, they were all profitable and the profit factors are generally good. The percentage of profitable trades range from 30% to 50%, but remember that these are optimized. To make it easier to see the results, Table 2 shows only the total profits. I’ve separated out Nvidia because it distorts the results.
Table 2. Summary of stock trend profits.
Without Nvidia, the concurrent close is the best results, but we can’t all trade on the close. The open drops the profit by 18%, while the next close is off by 13%, If you can’t trade on the close, then the close of the following day is best.
Results of the Trend Strategy for Futures
Because of the inherent leverage of futures, I’ll show the total profits for both long and shorts. Here again we have Bitcoin (BTC) overwhelming the results, so I’ll separate it out. Table 3 shows the results of the six markets. About 50% of the shorts lost money, but all of the long trades are profitable.
Table 3. Futures trend results from 2015,
To make it easier to see the results, Table 4 shows the profits from “All Trades” and Table 5 shows “Long Only Trades.” For Table 4 we see that waiting for the next close reduces the profits. Because futures markets open a half-hour after the close, it is likely that executing a small lot will get a price similar to the close.
Table 4. Trend futures all trades from 2015
In Table 5 we look at long positions only. Oddly enough, it does worse on the current close and much better by delaying to the next close.
Table 5. Futures trend trades, long-only.
Results of Mean-Reversion Trades for Stocks
For stocks, we will need to favor the long side. That means the long-term trend will be up and the short-term trend will be entering a short position (at which point we buy). Profits will be much smaller, the percentage of profitable trades will be bigger.
This approach would complement a long-term trend by off-setting the period where there is a drawdown in equity. While using only the long-term trend requires that you hold the trade during drawdowns, this approach has a good chance of offsetting part of that loss.
The profits tend to be small because the trade is held for a short time. The percentage of profitable trades is high. Table 6 shows the full results.
Table 6. Mean reversion strategy of stocks from 2015.
To make it easier, Table 7 shows the results of only the long profits. Using the next open has results similar to the current close, but waiting until the close of the next day is a problem.
Table 7. Stock profits from long positions, using mean reversion, from 2015,
To show how the percentage of profitable trades compares to the mean-reversion system for futures, Table 8 shows the percentage. Not bad for stocks that keep moving to the upside.
Table 8. Percentage of profitable trades for stocks using the mean-reversion system.
Results of Mean-Reversion Trades for Futures
Because of the leverage in futures, we expect more profits from the short sales; however, the best results still come from going long. Table 9 shows the detail.
Table 9. Detail of mean-reversion for futures, from 2015
In Table 10 we see the results of All Trades, and in Table 11 we see the long-only trades. By comparing the two tables, we can see that the shorts added profits.
Table 10. Futures profits using mean-reversion from 2015.
Table 11. Futures long-only profits using mean-reversion from 2015.
And finally, Table 12 shows the percentage of profitable trades using mean-reversion on futures.
Table 12. Percentage of profitable trades using mean-reversion for futures (All Trades).
Summary
Overall, trading on the concurrent close of a new signal is best. That may be difficult for some traders, especially if they have a large portfolio, or if they need to run an algorithmic system and download data.
For stocks, using a trend-following system, the next best choice would be the following close and only taking long trades. It is even possible that you might get another change of direction and not need to alter your position.
For stocks, using mean reversion, our choice of stocks showed that Nvidia overwhelmed the results. But without Nvidia, trading the next open worked best. Waiting for the next close came at a big loss. Again, taking only long trades was the best approach. Remember that mean-reversion trades are only a few days, so they can be very sensitive to price changes.
For futures, the trend trades also prefer longs and there was a significant deterioration going from today’s close to the next close. Trading today’s close or when the market reopens would be best.
For futures, mean reversion was more interesting. Although the profits were not big, the percentage of profitable trades was very high (as you would hope in mean-reversion. There was not much deterioration be delaying until the next day. Trading both long and short was the best approach.
A Standing Note on Short Sales
Note that the “All Signals” reports show short sales in stocks and ETFs, even though short positions are not executed in the equity portfolios. Our work over the years shows that downturns in the stock market are most often short-lived and it is difficult to capture with a longer-term trend. The upwards bias also works against shorter-term systems unless using futures, which allows leverage. Our decision has been to take only long positions in equities and control the risk by exiting many of the portfolios when there is extreme volatility and/or an indication of a severe downturn.
PORTFOLIO METHODOLOGY IN BRIEF
Both equity and futures programs use the same basic portfolio technology. They all exploit the persistence of performance, that is, they seek those markets with good long-term and short-term returns on the specific system, rank them, then choose the best, subject to liquidity, an existing current signal, with limitations on how many can be chosen from each sector. If there are not enough stocks or futures markets that satisfy all the conditions, then the portfolio holds fewer assets. In general, these portfolios are high beta, showing higher returns and higher risk, but have had a history of consistently outperforming the broad market index in all traditional measures.
PERFORMANCE BY GROUP
NOTE that the charts show below represent performance “tracking,” that is, the oldest results since are simulated but the returns from 2013 are the systematic daily performance added day by day. Any changes to the strategies do not affect the past performance, unless noted. The system assumes 100% investment and stocks are executed on the open, futures on the close of the trading day following the signals. From time to time we make logic changes to the strategies and show how the new model performs.
Groups DE1 and WE1: Daily and Weekly Trend Program for Stocks, including Income Focus, DowHedge, Sector Rotation, and the New High-Risk Portfolio
The Trend program seeks long-term directional changes in markets and the portfolios choose stocks that have realized profitable performance over many years combined with good short-term returns. It will hold fewer stocks when they do not meet our condition and exit the entire portfolio when there is extreme risk or a significant downturn.
Equity Trend
One month makes a big difference. After more than a 20% loss, the benchmark 10-stock portfolio is now positive. The 30-stock portfolio is ahead by more than 4% for the year. The Weekly portfolio is still lagging but should be up about 13% for September, with the larger portfolio also ahead for the year.
At the end of the month we were heavily into tech stocks, which seems to account for the gain. Yes, it is likely to be volatile, but that is part of choosing the stocks that will perform. So far the system has performed in the past, and we are looking forward to the last quarter of this year.
Income Focus and Sector Rotation
Now that the Fed has started lowering rates, the Income Focus program should post gains. In September it gained between 1.25% and 1.50%. It’s a start! Still, a lot depends on the Fed.
Weekly Sector Rotation
Small gains this month continues to move returns higher, although still down more than 4% for the year. This program has been uncorrelated to the market, investing in financials, utilities, and energy. At some point it will get into tech stocks, but the current volatility has kept it out.
DowHedge Programs
While both daily and weekly DowHedge programs gained nicely, the Daily program is higher by 15% this year while the Weekly program is flat. That tells us that markets are changing quickly. Sometimes it’s better to hold the same trade and let the market come back to you. In this case it was better to switch.
High-Risk Portfolios
We did say this portfolio would be volatile! After the past two months of flopping around, the smaller portfolio gained 28% in September, while the larger gained 15%. That puts the 5-stock portfolio above the long-term historic returns of 21% and the larger portfolio just below its forecasted returns of 17%. However, there is another three months to go!
Group DE2: Divergence Program for Stocks
The Divergence program looks for patterns where price and momentum diverge, then takes a position in anticipation of the pattern resolving itself in a predictable direction, often the way prices had moved before the period of uncertainty.
Another program doing well this year is the Equity Divergence, gaining 4% and 3% in September and now above its long-term historic performance. This program works best during trend markets, but entering on a technical divergence expecting price to revert to the trend. So far, so good.
Group DE3: Timing Program for Stocks
The Timing program is a relative-value arbitrage, taking advantage of undervalued stocks relative to its index. It first finds the index that correlates best with a stock, then waits for an oversold indicator within an upwards trend. It exits when the stock price normalizes relative to the index, or the trend turns down. These portfolios are long-only because the upwards bias in stocks and that they are most often used in retirement accounts.
Another good month for the Timing program, with the 10-stock portfolio gaining 6%, now higher by 13% for the year. The larger portfolio gained 2.5% and is ahead by 6.3% for 2025. This program had reasonably small drawdowns during the previous year of uncertainty, but now seems ready to move higher.
Futures Programs
Groups DF1: Daily Trend Programs for Futures
Futures allow both high leverage and true diversification. The larger portfolios, such as $1million, are diversified into both commodities and world index and interest rate markets, in addition to foreign exchange. Its performance is not expected to track the U.S. stock market and is a hedge in every sense because it is uncorrelated. As the portfolio becomes more diversified its returns are more stable.
The leverage available in futures markets allows us to manage the risk in the portfolio, something not possible to the same degree with stocks. This portfolio targets 14% volatility. Investors interested in lower leverage can simply scale down all positions equally in proportion to their volatility preference. Note that these portfolios do not trade Asian futures, which we believe are more difficult for U.S. investors to execute. The “US 250K” portfolio trades only U.S. futures.
It's not out of the woods yet, but September helped. Portfolios gained from 5% to 12%, with the $500K portfolio now down only 2%. Trends in futures have been difficult to find. Gold has been good, and the dollar has been falling, but not fast enough! Energy has flopped around. With the Fed looking to lower rates (somewhat), we should see some improvement.
Group DF2: Divergence Portfolio for Futures
Mixed results in September and mixed results for the year. More than any other futures program, this depends on the trend. It looks for a pause in the trend to enter. The market has not been accommodating.
Blogs and Recent Publications
Perry’s books are all available on Amazon or through our website, www.kaufmansignals.com.
September 2025
No articles in September, although Perry has committed to being the Keynote Speaker at the Society of Technical Analysts (STA) when it hosts the IFTA conference in October 2026 (not this year!)
August 2025
The September issue of Technical Analysis of Stocks & Commodities has Perry’s article “Using the Elusive Volume Confirmation.” While volume has been an important component of price movement, Perry takes a look at how useful it has been.
July 2025
This month (the August issue) there is an article on “Explaining FX Carry (In Detail).” The Carry program has had years of profits followed by years of losses, yet it is a very important part of institutional trading. This article shows how it is actually done.
Perry has been asked to be the Keynote speaker at the IFTA Conference in London in 2026 (not this year!). Of course he will accept. Plan to be there!
June 2025
Yes, another article! “There is Money To Be Made On The Weekends – But You Need to Know The Market,” appeared in the June issue of Technical Analysis of Stocks & Commodities.
Perry gave a Webinar to “Trading Heads” in Mumbai, India on June 5 at 9:30 AM New York time. Discussed “Not the Usual Diversification.” With any luck, it was taped.
May 2025
You’ll find Perry’s article “Trading the Channel” more interesting than usual. Published in the May issue of Technical Analysis of Stocks & Commodities, it looks at various ways of construction a channel, and one very profitable one.
Perry also addressed a Spanish class where they are building algorithmic strategies. Called ROBOTRADER, it in ETSIT-UPM (Escuela Técnica Superior Ingenieros Telecomunicación- Universidad Politécnica Madrid). The presentation is about Diversfication (in English) and available on youtube.
April 2025
Perry did a studio interview with Jeff Baccaccio (“Rfactory”) in London in March. It is a fine production and a good interview. He has put it on youtube. I hope you enjoy it.
YouTube: https://youtu.be/jmR359jHYBQ?si=IHQ5bVLijGFM19qF
Another article in Technical Analysis of Stocks & Commodities for April, “Do Stops Really Work?” The conclusion even fooled Perry.
March 2025
Perry looks at an old standard in “Revisiting the 3-Day Trade,” which appeared in Technical Analysis of Stocks & Commodities in the March issue.
February 2025
Another article, “Chasing the Market” appeared in the February issue of Technical Analysis of Stocks & Commodities. It answers the question, “Can you make money entering the market after a big move?”
Perry enjoyed the “Fireside Chat” at the Society of Technical Analysts (STA) in London on Tuesday, February 11. It should be available for viewing on their website. He also taped another interview and we’ll let you know how to see it when it’s released.
He also posted “If you think the market will tank, here’s a plan” on SeekingAlpha. It has received lots of view and good comments, although it is advising deleveraging.
December 2024
“Overlooked Strategy Rules” appeared in the December issue of Technical Analysis of Stocks & Commodities. We tend to overlook certain rules that can make a big difference to results. This article looks at scaling in and scaling out of a position, delayed entries, correlations, and other simple but important rules.
October 2024
“Trading a Breakout System” was published in Technical Analysis of Stocks & Commodities. It looks at whether it’s better to enter on the bullish breakout, wait for confirmation, or buy ahead of the breakout. It’s a practical look at improving breakout results.
Older Items of Interest
Perry did a studio interview with Jeff Baccaccio (“Rfactory”) in London in March 2025. It is a fine production and a good interview. He has put it on youtube. I hope you enjoy it.
YouTube: https://youtu.be/jmR359jHYBQ?si=IHQ5bVLijGFM19qF
Perry was interviewed on June 27, 2024 by Simon Mansell and Richard Brennan at QuantiveAlpha (Queensland, Australia), a website heavy into technical trading. It appears on their website.
On April 18th, 2023, Perry gave a webinar to the Society of Technical Analysts (London) on how to develop and test a successful trading system. Check their website for more details, https://www.technicalanalysts.com..
Perry’s webinar on risk, given to the U.K. Society of Technical Analysts, can be seen using the following link: https://vimeo.com/708691362/04c8fb70ea
For older articles please scan the websites for Technical Analysis of Stocks & Commodities, Modern Trader, Seeking Alpha, ProActive Advisor Magazine, and Forbes. You will also find recorded presentations given by Mr. Kaufman at BetterSystemTrader.com, TalkingTrading.com, FXCM.com, systemtrade.pl, the website for Alex Gerchik, Michael Covel’s website, TrendFollowing.com, and Talking Trading.com.
You will also find up to six months of back copies of our “Close-Up” reports on our website, www.kaufmansignals.com. You can address any questions to perry@kaufmansignalsdaily.com.
© September 2025, Etna Publishing, LLC. All Rights Reserved.