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Frequently Asked Questions

Dr K Market Direction Model
Can you let us know when the model is close to switching signals? Can you also recommend position size when it does switch?

One should not try to predict where the market will go and how it will go about getting there. In giving more frequent updates on the model, it generally only serves to confuse the situation. We can conjecture as to how close the model is to switching, but in reality, the market will do what it does, and this often proves unreliable. What does prove reliable based on history are the actual signals issued by the model.


That said, ideally, the only updates would be the actual change in signal. Period. But we do give more frequent updates as warranted.


One gets a sense that there are more false than true signals, but in examining the performance tables, one also sees that the true signals far outweigh the small losses from the false signals (whether one examines the NASDAQ Composite, or TYH, or TNA). Thus, some members decide to use a fixed position size on each change in signal in a particular ETF or set of ETFs. They opt not to exceed their position size limits as they must stay within their maximum risk tolerance levels.


Thus since the model's fail-safe typically kicks in within a 2% loss on the NASDAQ Composite, this would translate into roughly a 6% loss on a 3-times ETF. If the loss is 3%, which is rare, then this would translate into roughly a 9% loss on a 3-times ETF.


Note, when intiating a position, everyone should use a stop on their position that fits within their maximum risk tolerance level.

Published: May 7 2011, Modified: May 9 2011