We are long-only contrarian traders
Our strategies are 100% mechanical
Our strategies trade leveraged mutual funds
Our strategies trade frequently
Our strategies exhibit low correlation to the stock market
We Are Long-Only Contrarian Traders
Our strategies primarily trade funds that are out-of-favor (oversold) short-term. Put another way, we are the opposite of trend followers. And we NEVER go short. Our trading style is based on a powerful historical observation - equity markets tend to go up when oversold, but do not consistently go down when overbought.
When we believe the market is either fairly valued or overbought, we move to the safety of cash. We firmly believe that knowing when to be out of the market is just as important as knowing when to be in, and historically, we have spent over half of all trading days 100% out of the market.
Our Strategies are 100% Mechanical
Our strategies follow a set of mathematical rules that have been extensively tested using historical market data, and we NEVER overrule the system. Even when our strategies generate signals that do not match our personal views, we put our trust in the research that went into the developing the strategies, not our gut feeling.
Why is this important?
The pressure to perform can be a powerful tool when talking about sports or business, but it's the nemesis of a good trading plan. Many timers in this industry do very well when managing their own accounts, but fail miserably when they find themselves responsible to others. As 100% mechanical traders, we are free from that pressure. We have spent a lot of time planning the trade - now we rest well at night knowing we are trading the plan.
Our Strategies Trade Leveraged Mutual Funds
Our strategies are designed to trade leveraged funds from ProFunds, Rydex, and Direxion (with the exception of our more risk-averse Unleveraged U.S. Indices strategy which trades unleveraged funds).
These funds give us a great deal of power because they multiply the return of the markets by as much as 200-250%. But they also multiply losses and carry the risk of a major drawdown if the market turns against us. We attempt to manage this risk by trading a diverse group of funds, but this potential risk cannot be ignored.
Our Strategies Trade Frequently
Our strategies trade frequently and trades usually don't last longer than a week (avg. hold time ~3.0 days). We exit positions quickly when we feel that they have become fairly valued or overbought, or if the market does not react as we expect.
Our Strategies Exhibit Low Correlation to the Stock Market
How does our approach to investing perform under different market conditions?
Historically, in terms of absolute performance (actual return) we have performed best in up trending markets, but in terms of relative performance (our return compared to the market), we have performed best in down trending markets.
The net affect of all of this is that we exhibit a very low correlation to the stock market - currently about +34% (monthly as of 11/2007). For updated statistics, see our supplemental statistics page.
Our Strategies Trade a Diverse Group of Funds
Below is a breakdown of the funds each of our portfolios trade:
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This diverse fund selection allows us to smooth out some of the volatility in our portfolio by trading multiple less-than-perfectly correlated assets using entirely different entry/exit criteria.
Our Strategies are Not Appropriate for All Investors
Trader beware. Our strategies have performed exceptionally well historically, but past performance never guarantees future results. Funds do not allow for the use of protective stops and sometimes we employ a significant amount of leverage. Our strategies are not appropriate for all investors, so do your own due diligence, and as always, trade at your own risk!
Our performance is audited by 3rd parties Timer Trac and Theta. Click to view our audited performance:
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