Dizzy (Derek) August 31 2010 at 7:45 am (Edit)
Awesome Chris, thanks for the quick response, that answers the questions I had.
Chris Kacher August 31 2010 at 4:28 am (Edit)
Thank you for your kind words.
The Market Direction Model comes with a built-in fail safe, so if the signal is false, it protects itself by neutralizing the signal. The stop loss fail safe level depends on the volatility of the market. In practice, the stop loss is usually contained to within 3% the NASDAQ Composite, thus QQQQ can be used as a proxy. Of course, if one is trading a 3x ETF such as TYH/TYP, then multiple this 3% by 3 = 9% stop loss. If the market becomes excessively volatile such as after the flash-crash in May, it could go neutral while the market’s volatility works itself out.
Leveraged ETFs used to have larger tracking errors. This inefficiency has largely been exploited so today’s leveraged ETFs have far less tracking error than leveraged ETFs that traded a year ago. For example, the model’s buy signal on 3/1/10 on TNA scored a 38.4% gain when it was then sold when the model switched to a sell signal on 4/19/10. TNA is 3x the Russell 2000 index. By comparison, the Russell 2000 was up 11.2% during this period, so an investor who bought TNA made roughly 3x the Russell 2000, with a few extra percentage points thrown in (as opposed to earlier times when the returns would be less than 3x the Russell 2000.
Dr. Chris Kacher
MoKa Investors, LLC
Registered Investment Advisers
Author of: “Trade Like an O’Neil Disciple: How We Made 18,000% in the Stock Market”
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“Trade Like an O’Neil Disciple” Authors Gil Morales and Chris Kacher
Q: How long did you work with William J. O’Neil + Company?
Chris Kacher: I worked with William J. O’Neil + Company for roughly six years, from January 1996 to October 2001.
Gil Morales: I worked for O’Neil for exactly eight years, starting in November of 1997 and departing at the end of October 2005. While there I headed up the Institutional Services group as VP and Manager, ran a portion of the internal proprietary portfolio as a Senior Portfolio Manager, served as Chief Market Strategist from 2004‐2005, and co‐authored with William J. O’Neil the Wiley title, “How to Make Money Selling Stocks Short.”