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Cybernetic Trading Strategies (Ruggiero Murray A.)Ruggiero Murray A. 
Foreword As we approach the end of one millennium and the beginning of another, computers have changed the way we think and act. In the field of financial market analysis, the changes have been nothing short of revolutionary. Some of us remember when analysts charted the performance of markets without the aid of computers. Believe me, it was slow and no fun at all. We spent hours constructing the charts before even getting to the fun part-analyzing them. The idea of experimenting with indicators and optimizing them was still decades away. The computer has removed the drudgery of market analysis. Any investor can buy a computer and some inexpensive software and, in no time at all, have as much data at his or her fingertips as most professional money managers. Any and all markets can be charted, manipulated, overlaid on one another, measured against one another, and so on. In other words, we can do pretty much anything we want to with a few keystrokes. The popularity of computers has also fostered a growing interest in technical market analysis. This visual form of analysis lends itself beautifully to the computer revolution, which thrives on graphics. Up to now, however, the computer has been used primarily as a data-gathering and charting machine. It enables us to collect large amounts of market information for display in easily understood chart pictures. The fact is, however, most of us have only been scratching the surface where the computer is concerned. We've been using it primarily as a visual tool. Enter Murray A. Ruggiero, Jr., and Cybernetic Trading Strategies. I first became aware of Murray's work when he published an article titled "Using Neural Nets for Intermarket Analysis," in Futures Magazine. I subsequently did a series of interviews with him on CNBC in which he developed his ideas even further, for a larger audience. I've followed his work ever since, with growing interest and admiration (and occasionally offered a little encouragement). That's why I'm delighted to help introduce his first book. I do so for some selfish reasons: Murray's research validates much of the work I helped develop, especially in the field of intermarket analysis. Murray's extensive research in that area not only validates my earlier writings in that field but, I believe, raises in-termarket analysis to a higher and more practical level. Not only does he provide statistical evidence that intermarket linkages exist, but he shows numerous examples of how to develop trading systems utilizing intermarket filters. Most traders accept that a positive correlation exists between bonds and stocks. How about utilizing a moving-average filter on the bond market to tell us whether to be in the stock market or in T-Bills? One such example shows how an investor could have outperformed the S&P500 while being in the market only 59 percent of the time. Or how about utilizing correlation analysis to determine when intermarket linkages are strong and when they are weak? That insight allows a trader to use market linkages in trading decisions only when they are most likely to work. I was amazed at how useful (and logical) these techniques really were. But this book is more than a study of intermar-ket analysis. On a much broader scale, traditional technical analysts should applaud the type of work done by Murray and young writers like him. They are not satisfied with relying on subjective interpretations of a "head and shoulders pattern" or reading Elliott Waves and candlestick patterns. They apply a statistical approach in order to make these subjective methods more mechanical. Two things are achieved by this more rigorous scientific methodology. First, old techniques are validated by historical backtesting. In other words, Ruggiero shows that they do work. Second, he shows us how to use a more mechanical approach to Elliott Waves and candlesticks, to make them even more useful; Murray does us all a favor by validating what many of us have known for a long time-technical market analysis does work. But it can also be made better. There's much more to this book, having to do with state-of-the-art thinking-for starters, chaos theory, fuzzy logic, and artificial intelli-gence-which leads us to some new concepts regarding the computer itself. The computer can do more than show us pretty pictures. It can optimize, backtest, prove or disprove old theories, eliminate the bad methods and make the good ones better. In a way, the computer almost begins to think for us. And perhaps that's the greatest benefit of Cybernetic Trading Strategies. It explores new ways to use the computer and finds ways to make a valuable machine even more valuable. Technical analysis started being used in the United States around the beginning of the 20th century. Over the past 100 years, it has grown in both value and popularity. Like any field of study, however, technical analysis continues to evolve. Intermarket Technical Analysis, which I wrote in 1991, was one step along that evolutionary path. Cybernetic Trading Strategies is another. It seems only fitting that this type of book should appear as technical analysis begins a new century. John J. Murphy |
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Cybernetic Trading Strategies