Frequently Asked Questions

Dr K Market Direction Model
I just joined. The suggested ETFs are trading higher today than where they were originally recommended. Should I buy an ETF now or wait until the next signal change to act?

If you buy an ETF now and the ETF is trading well above where the signal was issued, you are buying late. It is then best to wait for the next signal change to act. However, if you do choose to buy an ETF now, make sure you set your own stops on the ETF since the model's fail-safe, which is designed to limit losses from the time a change in signal occurs, may be far from where the market is currently trading. You could scale in slowly while always maintaining stop losses. Alternatively, you could wait for a pullback. Note, however, that a pullback, if strong enough, could cause the model to switch signals. Of course, you will receive email updates if this were to occur.

In general:

The further the market moves from the time of the signal, the greater your risk. The model's returns are based on going long or short at the time of the signal. The NASDAQ Composite has moved 1.1% lower since the sell signal was issued, so you could still buy an inverse ETF if it does not exceed your maximum risk tolerance level.

For example, if your maximum risk in initiating a position is 8%, and you buy a 3x ETF late (1.1% late on the NASDAQ Composite is roughly 3.3% late on a 3x ETF), you could more easily get stopped out prematurely. On the other hand, you could initiate a smaller position size with a larger maximum risk of say 11% to compensate for being late.

Published: Oct 9 2010, Modified: Sep 19 2011