Product Description

Every trader will appreciate this reliable, realistic, and systematic approach to trading financial and commodity markets. In a step-by-step manner, the author applies a rigorous mathematical discipline to finanical speculation and explain how to analyze markets, forecast price movements, develop trading strategies, and manage trading capital. Kase also unveils several highly sophisticated indicators that are far more precise than conventional technical indicators. Unlike most books on trading, Trading with the Odds contains complete coverage of money management, including the author's own ``Kase Dev-Stop,'' a highly calibrated money management tool. Trading with the Odds also includes: Uses and abuses of conventional technical analysis; New technical indicators for analyzing markets and entering trades.

Product Details

• Amazon Sales Rank: #490184 in Books
• Published on: 1996-03-01
• Original language: English
• Number of items: 1
• Binding: Hardcover
• 250 pages

About the Author
McGraw-Hill authors represent the leading experts in their fields and are dedicated to improving the lives, careers, and interests of readers worldwide

Customer Reviews

excellent & original contribution to trading literature... assuredly not for beginner
Summary -- Cynthia Kase's "Trading With The Odds" is an excellent and original contribution to the trading literature, and merits at least 4.5 stars... but this book is assuredly not for the beginning or superficial technician.

I've read enough book reviews on Amazon now to be able to somewhat ferret out the useful bits from the whining and complaining. I don't write reviews often, but feel compelled to in this case (no pun intended), given the lopsided ratio of whining-to-substantive reviews here resulting in a mean (pun intended) 3 star rating.

Out of 320-someodd trading books on my shelves, this one is a standout. It is one of the 10% in my possession that I have repeatedly referred to, and actually utilized, over the years. I first eagerly read Kase's book upon its release in 1996 (I first heard Kase speak on tape from an early 1990's Computrac TAG Conference). This material stands the test of time in 2005... why? Because Cynthia offers original indicators and methods, several of which adapt to market conditions. With these adaptive indicators, you somewhat sidestep the thorny dilemma of lookback period optimization, and the random-feeling approach of twiddling with indicator settings.

Indeed, this book does advertise Kase's service and wares, and it does not spoonfeed indicator formulae into the public maw (this is probably a good thing, come to think of it... but my stating as much sounds as arrogant as Tom DeMark. My apologies ;-). To the beginner, who hasn't gotten a basic education or appreciation for statistics, or who hasn't read in some depth about some of the less "popularized" technical indicators over the years (e.g. the Paulos' Random Walk Index), this may be an annoyance. But don't let beginner-itis overshadow Kase's contributions here, which are many, original, and refreshingly statistically-based.

Cynthia is a former corporate energy trader who has gone out on her own. Her engineering background shines through in her intellectually rigorous and scientific (yet practical) approach towards using statistics where it makes sense... embedded in the indicators to take them towards market adaptivity.

Her description of the self adaptive indicators alone is worth the price of admission, and then some. I had no trouble developing my own versions of, for example, the Dev-Stop, the Kase Oscillator, and the Kase CD... Kase gives the knowledgeable reader enough methodological description and enough examples that you can essentially reverse-engineer her indicators with just a bit of work.

A book overview:

Kase begins the book by laying out her beliefs and views on the markets. She's an engineer by training, and believes the use of statistics can be of use in analyzing market data. She believes that the markets are symmetrical across time frames, and that Elliott's Wave Theory is "essentially correct", and its use can provide a framework or roadmap for the technical trader/navigator. She believes that active markets which are widely traded (those not regulated or dominated by a small group of entities) are generally but not entirely predictable. She uses an Elliott framework with Fibonacci expansions and retracements to forecast a roadmap... and statistically-driven indicators to assist in trade entry and exit, while acknowledging that this approach can cut only so close to predictability given chaotic inputs to the markets.

Chapter 2: Kase then offers an excellent, concise background overview of normal statistics (mean, median, variance, normality, and skew... a foundation on which she builds.)

In Chapter 3, she then offers her 6 behavioral laws on integrating forecasting into a trading plan. Forecasting Laws one and two remind the trader that the objective is profit, not ego-stroking, and not proving one's thesis or world view. The other four laws deal with being wrong and moving on (cut losses short to positively skew your returns distribution), having confidence in your own thorough analysis, filtering out distracting market news, and the need for detailed strategy planning outside market hours. The basic idea, according to Kase, in recognizing patterns for forecasting is to evaluate wave counts and try to determine where the market is in the Elliott count, with special import on knowing whether the market is in a trending or corrective move. Kase demonstrates specifically how she uses Fibonacci to forecast and look for confluence numbers. (She distills what she considers to be the 80/20 essentials of Elliott Wave down to two pages, leaving a thorough treatise on Elliott to any of the number of other books already on the market).

Chapter 4 outlines her approach towards the use of multiple time frames and diversification (by scaling up and down) using time for risk control. Example: Kase shows how she uses e.g. trending or momentum indicators on daily bars to filter or "permission" directional (long vs. short) trades. She then illustrates how to drill down into one major time frame shorter, e.g. hourly or 30 minute bars, to fine tune entries and exits. She discusses the effects on number of trades, trade accuracy, slippage and commissions (see also Alexander Elder's Triple Screen trading method). There is a discussion of tick volume, and some empirical evidence showing that price and volume are proportional to the square root of time.

Chapter 5 is where Kase's real contributions to the literature begin. She discusses some of the difficulties with the standard (Stochastics, RSI, MACD) indicators... problems with oscillator normalization, sensitivity during quite markets, lack of sensitivity during trending markets, problems with indicator dependence on local conditions, and problems with e.g. a spike top turning point which doesn't create oscillator divergence. Kase offers original ideas on how you can substitute a statistical measure of trend (e.g. RWI) for empirical measures, allowing a statistical determination of OB and OS that allows uniform comparison across markets and across time periods. Kase's Peak Oscillator is a very interesting construct... Kase suggests that OB or OS can be determined based on either the 90th percentile historically, or the 98th percentile based on current/local data, whichever is greater. The upshot is that this oscillator often objectively signals market turns where other so-named "momentum" indicators miss based on failure to show momentum divergence (i.e., it's a nice addition to the usual momentum indicators... and a pretty cool tool). Kase then goes on to develop what she calls the KaseCD... a derivative of the Peak Oscillator and MACD that may show divergence when other oscillators don't. Kase then suggests how she combines indicators to generate a signal for the trader to drop down into one lower time frame to fine tune entries and exits. Kase then demonstrates empirically how and why (stability) she chooses the lookback period for the RWI.

Chapter 6 develops the logic and methodology behind Kase's adaptive "Dev-Stop", which to my way of thinking, is the single most valuable tool from this book (the literature is just full of entry techniques, but sorely unbalanced in exit techniques). The key aspect of the Dev-Stop is that it accomodates local/current market behavior by placing a statistical volatility-derived stop far enough from the trend to accommodate noise. Kase acknowledges her inspiration, both Wilder and Bookstaber, and builds on their work in a logical and statistical way to create a volatility stop adjusted for skew. Kase shows the five candlestick patterns that she uses to accelerate stops in conjunction with her Dev-Stop . She passively mentions the use of inactivity and breakaway stops (shame she didn't dig deeper here). The Dev-Stop helps statistically balance the optimal point between allowing profits to run and cutting losses ... a trading maxim often mentioned but not usually specified with useable depth. Another cool tool.

Chapter 7 walks through trades using a trade plan, a very helpful tutorial utilizing two volatile markets (Silver & NatGas), an approach sorely needed but only rarely included in the technical trading literature.

Chapter 8 forwards an idea illustrating how tick volume bars are statistically less widely distributed, and all else being equal, can reduce trade risk by ~ 15%. She forwards the idea of using equal range bars... i.e., instead of using the elapse of time to govern the amount of market price data incorporated into the construction of a price bar, she suggests that bars can be created of equal true range size instead. Her posit is that trading based on momentum and other sensitive techniques can be "sped up" given the cleanness of equal range bars. She notes that timing into the market using equal range bars is better executed with oscillators (MACD, Stoch, RSI) rather than moving averages, since the log of MA's tends to be exaggerated at V-type turns when using equal range bars. An interesting twist, but unfortunately, one that remains largely unsupported by the software packages with which I'm familiar.

Constructive suggestions -- the book could benefit from:
* use of at least one example illustrating the development of a full setup and exit strategy, including back testing of one market in setting up parameters from which to operate.
* Could also use a few insights into position sizing, scaling in/out, conservative pyramiding, disaster control (e.g. w/ options)
* Tools for identifying and dealing with trading range markets
* Tools for identifying and trading specific markets (e.g. which markets seem to defy her style of technical analysis, and how to gauge?)
* Specification of her indicators would be nice, but I understand her commercial objectives.

Indeed, sometimes thinner is better. Great 150 page book, with plenty of original ideas. I look forward to her next, or to an updated revision of this one. Four and a half stars, rounded up to five to counterbalance the obvious skew of the reviewing masses.

TIME TRAVEL FOR TECHNICAL ANALYSTS
Trading With the Odds exemplifies one of Larry Williams' observations about text books on technical analysis and trading in general: thinner is better. Cynthia Kase delivers a spare 150 pages crammed full of fresh ideas about technical analysis and profitable trading, written in the rigorous voice of a professional engineer and corporate trader. The narrative style compares to other technical books the way espresso compares to coffee: highly concentrated and correspondingly brief, but rich in explanatory sidebars, chart illustrations and appended tutorials.

Definitely not a quick read or a quick solution, and certainly not a How To book in the sense of giving you TradeStation or UltiManager printouts to try to replicate at home. Instead, Trading With the Odds is an idea book, almost terse in its highly focused thesis. It is a make-you-think book, not for whiners or week-end warriors but for serious players who will do any amount of work to develop an edge in trading.

Probability is both a narrative thesis and working paradigm in Trading With the Odds: it is an interpretive approach for ordering the uncertainty at the right-hand side of the chart. If you know the pain of seeing weeks of careful system-building dissolve during walk-forward testing as parameters shift over time, you will be receptive to Ms. Kase's message. Her goal is a self-adapting method.

Expect to see familiar topics from a fresh point of view: volatility, range, filters, set-up and entry criteria, oscillators. Add to that some intellectual property from Ms. Kase's proprietary systems: a practical guide for using Elliott Wave Theory in forecasting; screening trades in a different time-frame from actual trading, then fine-tuning entries in yet another time-frame, all part of a concept of time diversification in a single market; synthetic bars; and ideas about the skew of volatility and the applications of stochastic processes and random walk theory.

Trading With the Odds is not recommended as a beginner's book, because beginners need small steps with lots of nurturing along the way. Ms. Kase takes big strides down a narrow path with scarcely a backward glance (save for the handy tutorials and sidebars), which is sure to leave many students out-of-breath and far behind. The challenge is well worth it, however, and certainly worth the price of the book. The best traders make their own decisions, solve their own problems and develop their own strategies, so it follows that the best text books for some students are those that help them ask better questions. Trading With the Odds is one of those books.

Thin But Not Concise
...

As the book progresses, many interesting and educational points are given to the reader, such as Time Diversificaton and a solid manner of choosing the different time frames to be studied. I also liked the forecasting grid and the comparing of various time frames to improve forecasting as well as the synthetic bars. However, the meat and potatoes of the book are the mathematics used in the indicators which she never fully divulges. She hints at them with statements such as "The RWI, with our correction, forms the basis for the mathematics used in calculating the Kase PeakOscillator (p90)." Now I think I have been able to piece together this oscillator but many readers I fear will be left short thinking they were left one dune in front of the oasis and still in the desert.

The same process continues in the chapter entitled Using Statistics to Find Optimal Stop: Kase's Adaptive Dev-Stop. We are given great instructions on how to use this indicator, it is just too bad we cannot code for it or actually use it without purchasing the indicators from a vendor.

So the last part of the book is Walking Through Trades, an interesting peak into trading the processes we have previosuly been learning. Their application though is contingent upon purchasing the indicators. And for my favorite part, "This represents a total gain of .5715 on this 2/3 and a net overall gain of $1.43 million on the overall strategy." Of course that is assuming an average trade size of 250 contracts!!

So now I have answered my question I think, this book is probably written as a counterpart to her indicators for professional corporate traders with an attempt to make it relevant to the common trader. So as a book that stands alone I am forced to give it 2.5 stars, but as an instruction manual to using her indicators, I would probably score it much higher.