NDX 3-4 Day Model
This pattern recognition model looks for short term trading patterns that are usually profitable. Once a trade is over, the funds are moved to cash/money market, awaiting another signal. To make the trading as easy as possible, it enters the trade at the closing price for the Nasdaq 100 index (NDX) for the day. The model gives the signal on the close of trading the day before. So for example, on the close Wednesday, the model may give a signal to “go long the NDX”. This trade will be officially entered on the close Thursday.
This makes it easy to trade ETF’s (exchange traded funds) or options or futures contracts, or even mutual funds that track the NDX index (since mutual funds are priced on the close of the day). The model also is easy to exit the position. On the close of trading on the third day, one liquidates ½ of their position. Then on the close of trading on the fourth day, one liquidates the last ½ of their position. At that point, the model is back in cash, 100%. Then it waits there for another signal.
Signals occur, on average, about once every 3 weeks. There are times when there are 4 signals in two months. There are times when 7 weeks go by without a signal. This model has been followed and traded (not religiously) for 3 years. The parameters and rules for trading have not been changed in 3 years. One may try to “fine tune” the entry and exit points, but for purposes of tracking, the model is always traded as stated above.
For 2007 the profit was 8.2%, for 2008 was 66.7% and for 2009, 7.6%. In addition, there would be interest accrued, and the model for the past 2 years was sitting in cash 67% of the time.
Gold Stock ModelThis pattern recognition model also looks for short term trading patterns that are usually profitable. Again, once a trade is over, the funds are moved to cash/money market, awaiting another signal. To make the trading as easy as possible, it enters the trade at the closing price for the day. The model is based off of the XAU index (Philadelphia Gold and Silver stock index).
Again, this makes it easy to trade ETF’s (exchange traded funds) or options or gold stock futures contracts, or even mutual funds that invest in precious metals stocks (since mutual funds are priced on the close of the day). There are ETF’s and funds that invest only in gold (GLD) or only in silver (that is, they invest only in the precious metal itself and not the companies involved in mining). Although the price of the precious metals themselves and the gold/silver companies are fairly closely related (they both tend to go up together and they both tend to go down together), this model trades the gold stocks and not the precious metals.
Once a signal is given, this model uses a profit target to liquidate the position back to cash/money market. It also uses a stop loss point, where one would exit the position back to cash, if the price went against you. Assuming the profit target and the stop loss point are not hit, the model liquidates the position on the close in 10 days.
If one is not trading options or futures contracts (or one just doesn’t have the ability to use margin and “sell short”), then what happens when the model gives a sell signal, which means to “go short the gold stocks”? There is one fund that has only end-of-day pricing from Profunds that can be traded with US accounts, that also tracks inverse to gold stocks, SPPIX. If one is able to trade on the Canadian exchanges, there is one ETF that tracks opposite (inverse) to gold stocks, HIG.to.
So if there is a signal to “sell the gold stocks”, then one can buy shares of HIG.to or SPPIX. If the gold stocks go down as expected, then the price of HIG.to and SPPIX will go up (because they move inversely, opposite, to the price of the gold stocks).
The performance over 2008 and 2009 has been quite good, but it is volatile.
SP500 ModelThis pattern recognition model looks for intermediate term trading patterns, so as to move long and then short and then long the general market. Occasionally, the funds can move to cash/money market. The frequency of trading is variable, but averages once every few weeks. The model is based on the SP500 index (SPX).
The model may be in cash or else has one of 6 positions: 100% long the market or 100% short the market, 67% long the market or 67% short, 33% long the market or 33% short.
Again, one can trade any investment vehicle that mimics the SPX: ETF’s (exchange traded funds) or options or futures contracts, or even mutual funds.
The performance for 2008 was +22.9% and for 2009, +31.3%.
The first row shows how a portfolio evenly split (1/3 to each of the 3 models) with no leverage (leverage is = 1 for each model), would have performed. The last column shows the $1000 would be worth $4517 at the end of 2009. There was one month (yellow column) that had a negative return over the past 24 months. The worst month had a return of -8.3%, the worst drawdown that occurred from any given day was -12.5% and the average drawdown was -1.4%. The Sharpe Ratio compares the performance to a “risk-free” 5% return on investment. In general, a Sharpe above 1.0 is good, above 2.0 is very good and above 3.0 is phenomenal.
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