I have been looking for a reliable trading system for many years. I ran hundreds of scenarios, mostly technical analysis. I wanted to find something easy, if you use too many indicators it's too complicated. You also don't want too many trades. I could find anything I like so I made my own system.
I looked at
50/200 moving averages--too late/early many time
10 months MA by Faber-It works only in crashes but not good at mild one. You can see it in this (
link)
I tracked the performance of GMO, Arnott and AQR Capital Management and they were not good.
Inverted yield, PE, PE10 can be off by months and years
When I was younger I was very heavy in stocks but in the last 7-8 years I learned a lot about bonds, starting with PIMIX.
In the last 5 years and close to
retirement I based my timing on the following
1) Bonds rule. Bonds must work rationally for me to be confident. Stocks don't have to be rational, they can go up regardless, at some point they will go down but they can be off by years/months
2) I simply set a rule of max loss from the last top for each fund I own. Years ago it was 3% for bonds and 6% for stocks. Now it's 1% for any bond fund I own, at 0.5% I start checking why.
If I sell a fund then I look at other funds in the same category, it the category bad or just this fund. Then I look at other categories, maybe they are doing OK.
example: rates go up most bond categories go down but wait, bank loans may go up.
make the switch.
When you have enough, it's just a number game. If I sell too soon and it rebounded and I miss the performance...I don't care.
3) Look at VIX. If it's over 30, it's a warning sign. Over 40 a stop sign. continue up, it's a danger zone. The key here is to look at extreme because it's hardly there.
4) Pay attention to the traders. I record fast money and watch it every day, at least the first 15 minutes. Pay attention to Carter Worth. Pay attention especially to an unusual guess Tony Dwyer with pretty good calls. These people give me the market internals, spirit and what the big Wall Street firms are doing. Investing for me is a passion for years.
5) I use simple tech indicators because many algos use it too. 50+200 MA, MACD, trends,
3-line-break (
link) This fast indicator tells you to get ready to buy/sell. I used these for riskier stuff for short term trading.
When stocks lose and rebound, they will capture most times 40-50%. I look at the SP500 + 3 line break + daily MACD(weekly MACD is better) when to enter and stay for 1-2 days of trade. The more it's down the more you can make and stay with the trade. It's feeling but if I made money I sell anyway if I think it's enough.
For my longer term bond holdings, I use a simple trend. I have several bond funds I like and just switch.
6) Common sense based on the news.
Examples:
The Fed says they will raise rates, watch your bond fund, stay away from simple IG bonds
The Fed said last week they will support IG bonds, start buying.
Fast trading:
A very known stock had bad news after hours and falls 20%. The next day, you can see the trading prior to the opening. It opens even lower at -22%, you buy, it will go up several %, you sell.
PCI is one of the best known CEFs. It was going down sharply and more than the SPY, then one day it was down another 20%, this means, investors are desperate, then I buy, I made 5% in 30 minutes. The next 2 days it was up another 15% but I don't care. I made money.
So, why I sold almost everything weeks ago because 1) bonds, including treasuries were acting irrationally 2) VIX over 45-50. These 2 are enough to sell but then stocks were crashing and all the news media were talking 24/7 about the Coronavirus.
Bottom line: I have strict written rules that I follow but I'm also flexible. Never say never, I learn stuff all the time and then I test it to see if it works. It took me years to be comfortable to trade and use big %.
