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Improve Your Entry Price

As a systematic trader I have spent a lot of time discovering ways to get a better entry price, all of them based on clear rules. A lot depends on your trade holding period, that is, whether you’re a short-term trader in for only 1 to 3 days, or a long-term trend follower with positions lasting 2 to 3 months. Early on, markets had much clearer trend. Eurodollars, short sterling, Euribor, and … [Read more...]

Low-Priced Stocks: A Golden Opportunity or an Unreasonable Risk?

You can buy a lot of shares of a low-priced stock, and it can double in price quickly. It sounds like a golden opportunity. We’ll take a closer look at some stocks that are trading a low levels and decide if we want to participate. There are stocks that have always traded at a low price, stocks that were once high and are now low, and stocks that have been delisted because they declared … [Read more...]

Is It Good News or Bad?

If you watch the financial networks, every event, every economic report, every price move is the most important move of the year. It can be exhausting. In previous years we used to watch the Money Supply, I don’t even remember why. These past two years we watch the Employment Report. If employment is up you would think that was good for the economy, but no. If Employment is up then the Fed will … [Read more...]

Are You Rewarded for Taking More Risk?

No, you’re not. Of course there are some exceptions, but let’s consider how the institutional managers handle the problem before we look at some examples. Unless you know that a specific trade is going to give you a bigger profit than others, you want to be sure that every trade you enter has the same risk. That gives each trade an equal chance to participate in the returns. If you put more … [Read more...]

Forecasting Energy Prices and the Impact on Stocks

Crude oil is a manipulated market, subject to the policies set by OPEC, although we underestimated its importance more recently. During the 1980s OPEC set the OGSP (Official Government Selling Price) at $18-$20/bbl (see left chart below). Some of the OPEC members cheated, loading ships with more crude than “contracted,” essentially discounting the price. This constant undermining of the price, … [Read more...]

Volatility, Profitability, and Leverage

Volatility clearly affects profits. Returns per trade are smaller when volatility is low, and larger when it’s high. So is risk. But do trend systems perform better in periods of high or low volatility? The answer to that is important because it will tell you whether you should leverage down or up during those phases, or avoid them completely. The anecdotal evidence is that returns are better with … [Read more...]

Maximize Equity Portfolio Returns

The Objectives Our program evaluates about 220 stocks and needs to choose portfolios with from 10 to 30 stocks which have expectations of beating the overall market, as measured by the SPDR ETF, the SPY. There are a number of important considerations: Only long signals are taken Stocks can be highly correlated Low-priced stocks can be just as volatile as higher-priced … [Read more...]

A Better Trend

Are we bored yet? We may be tired of trend following, but we should never ignore it just because it’s boring. Consider these points: Macrotrend systems have had the best track record of any method for the past 30+ years. They are based on a sound premise – following the reaction to economic policy. They don’t trade often (which bothers the brokerage houses). They work across nearly … [Read more...]

Dynamic Futures Trend Portfolios Expanded

If you’ve watched the performance of Managed Futures and CTA for the past few years, you’ll realize that the large majority of Advisors are stuck in a sideways pattern of returns (see Newedge Managed Futures Index below). This is most likely caused by the lack of trends, or reversals in trend, in the interest rate markets. For the past 30 years, prices have been rising overall, but interest rates … [Read more...]

Information Ratio- Comparing Performance

The chart below, Information Ratio for All Years of Data, is posted through 2013 shows the relative performance of all trading programs compared to the broad indexes. The information ratio is the annualized return divided by the annualized risk, giving the positive payout in terms that most investors would choose. The higher the ratio, the more desirable. Note that the ETFs for the three … [Read more...]

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