Do Or Die

Hi, My research comes from my trading experience. I do not use this strategy. I have better cards (see here, here and here). Sector rotation is a significant improvement over any strategy that you are using for broad market. For example, If you buy the SPY on 200 MA crossovers; switching to sector rotation whenever it crosses the MA will make a significant difference. At the most basic level, it will improve returns over buy and hold. I will post a backtested strategy example when get time.

Hi, Sector rotation is one of the easiest and top performing trading strategy. It is easy because you have to track markets only on daily time frame and hence requires little dedicated time. It performs well because other strategies in similar time frame (holding period > 6 months) tend to get whipsawed in current economic mess. The strategy is so much in demand that ETFs have been launched entirely to mirror a sector rotation portfolio. The Guggenheim/Zacks Sector Rotation ETF (Ticker: XRO) seeks to provide investment results that correspond generally to the performance of an equity index called the Zacks Sector Rotation Index. However, it is illiquid, and past performance data does not covers a full market cycle. Take past 6 months sector performance for example. The defensive sectors of Consumer Staples, Health Care, and Utilities (XLP,XLV,XLU) are performing much better than the leading sectors of Financials, Technology, Consumer Discretionary and Industrials (XLF,XLK,XLY, XLI). This means money is flowing to the defensive sectors; i.e., the overall market is bearish. The regional banks topped out much earlier than DOW as a sign of warning (also mentioned here). I have also attached the sector scenario for market bottom in 2009, which looks just the reverse of current situation. To use the list of ETFs, please keep the following points in mind: Illiquid ETFs may be used as indicators for market trend but do not use them for actual trading because they have tendency to deviate erratically from benchmark returns. The Equal weighted Rydex ETFs (first ticker letter R) tends to mirror the broad markets. The Is and Xs are market-cap weighted, meaning that larger companies have greater representation in the index. So far they have been the best indicators for identifying business cycles. Small Caps tend to outperform in the last leg of a bull market. There are also ETFs managed by rule based quantitative analysis by First Trust and Powershares. However, comprehensive information on the selection criteria is not available. The inverse ETFs or Short ETFs do not actually reverse the returns of their benchmark. You are better off shorting a relevant ETF than buying it’s inverse. SECTOR-WISE LIST XLY Consumer Discretionary Select Sector SPDR RCD Consumer Discretionary IYC iShares Dow Jones U.S. Consumer Services Sector Index Fund PSCD S&P SmallCap Consumer Discretionary Portfolio AXDI MSCI ACWI ex US Consumer Discretionary Sector Index Fund XLP Consumer Staples Select Sector SPDR 10.84% RHS Consumer Staples IYK iShares Dow Jones U.S. Consumer Goods Sector Index Fund PSCC S&P SmallCap Consumer Staples Portfolio AXSL MSCI ACWI ex US Consumer Staples Sector Index Fund XLE Energy Select Sector SPDR RYE Energy IYE iShares Dow Jones U.S. Energy Sector Index Fund PSCE S&P SmallCap Energy Portfolio AXEN MSCI ACWI ex US Energy Sector Index Fund XLF Financial Select Sector SPDR RYF Financials IYF iShares Dow Jones U.S. Financial Sector Index Fund PSCF S&P SmallCap Financials Portfolio AXFN MSCI ACWI ex US Financials Sector Index Fund XLV Health Care Select Sector SPDR RYH Health Care PSCH S&P SmallCap Health Care Portfolio AXHE MSCI ACWI ex US Health Care Sector Index Fund XLI Industrial Select Sector SPDR RGI Industrials IYJ iShares Dow Jones U.S. Industrial Sector Index Fund PSCI S&P SmallCap Industrials Portfolio AXID MSCI ACWI ex US Industrials Sector Index Fund 7.89% XLB Materials Select Sector SPDR RTM Materials IYM iShares Dow Jones U.S. Basic Materials Sector Index Fund PSCM S&P SmallCap Materials Portfolio AXMT MSCI ACWI ex US Materials Sector Index Fund XLK Technology Select Sector SPDR RYT Technology IYW iShares Dow Jones U.S. Technology Sector Index Fund PSCT S&P SmallCap Information Technology Portfolio AXIT MSCI ACWI ex US Information Technology Sector Index Fund XLU Utilities Select Sector SPDR RYU Utilities IDU iShares Dow Jones U.S. Utilities Sector Index Fund PSCU S&P SmallCap Utilities Portfolio AXUT MSCI ACWI ex US Utilities Sector Index Fund Posting a comment will only take you 2 minutes, but it will be the strongest motivation for me to share something better.

There are many techniques in Technical Analysis which have been called voodoo by academicians. However, if we approach Technical Analysis as study of price behavior, we get sufficient evidence from past data as well as day-to-day market behavior. Here I will mention some concepts which provide foundation to any technical analysis methodology- be it chart patterns, indicators, discretionary wave study (Wolfe or Elliott), MESA, detrending and so on. 1. Know Your Markets Beginners may feel TA is all about charts, and tend to overlook understanding the market segment in which they trade. Well, the fact is that whichever instrument you trade is largely influenced by its related market segment. For example, individual stocks are influenced by their respective industry group, broader stock market, and the economic cycle in which they are in. If you want to trade intraday you need to understand the microstructure of the instruments you are trading. For example, open price auction (and resultant open price behavior) is different among individual stocks. 2. Time Frames and Periods Everything that you talk about TA will be in reference to a specific time frame. If you say a stock is uptrending it does not makes sense unless you specify ether it is uptrending in intraday or for the past month. Time frame is a ‘snapshot’ of prices at regular time intervals. For example, in the hourly time frame you see the high, low, open and close prices for EACH hour. Time frames of magnitude more than the Daily are referred to as intraday. See the chart, the large price drop towards the end occurs usually more on minute time frames then daily time frames. Similarly time periods in indicators play a very important part in your analysis. Whichever time frame you are trading, it can be very helpful to watch a TF immediately bigger (to see the broad picture) and one time frame immediately smaller (for good trade execution). 3. Volatility Talking about volatility in a general sense will be hardly any use. Refer to Introduction to Understanding Volatility when you get started in Technical Analysis 4. Trends This is the most important part of TA. Prices do not follow a random walk, they exhibit trends. A trend can be up, down and sideways. To mark an uptrend consider the price troughs, to mark a downtrend consider the price peaks, and to mark sideways consider both peaks and troughs. A Moving Average of length 20 is also good to mark visualize immediate trend. Trends exist both in prices and volumes and they tend to correlate. (Refer Trend lines drawn and MA(40) in the chart) You should never initiate a trade against the current trend. 5. Levels Support and Ressistance levels is the next most imprtant concept after trend. These may also be called buying/selling zone, accumulation/distribution level, supply/demand lines and so on. You can mark these levels by referring to past highs and lows. The most recent highs/lows are more important price reference points. The more highs/lows a trend line can connect, the more important that level will be. A support/ressistance line does not neccessarily has to be horizontal; for example in the given chart, the two channel lines act as support and ressistance. When price breaks through previous support, the next time it rises, the same support acts as ressistance. So past support can act as ressistance and vice versa. Here is you first trading strategy trading strategy! Buy in a uptrend when prices retraces to a support level (retracement happens in the immediate lower time frame). 6. Momentum or Internal Relative Strength Refer Relative Strength - Internal The level at which a stock trading relative to its past trading range is important for timing you trade. Even in an uptrend a stock may move down in the shorter time frame or may stagnate at a price level. Oscillators are useful in gauging the momentum. 7. Mean Reversion When prices are extended in a particular direction, they tend to revert to their mean. The mean here is just a hypothetical value at which all buyers and sellers would like to see the market. The mean is always moving, and the simplest replacement of mean can be a short-term moving average. Refer to the circles marked in the chart when prices were extended to either direction. So here is your second trading strategy! Buy in a uptrend when prices are extended downwards (oversold) and returning to the mean. Mean reversion in prices tends to correlate with mean reversion in volumes. 8. Relative Strength Refer: http://www.traderslaboratory.com/forums/technical-analysis/10189-relative-strength.html Exactly how stronger an instrument is trading relative to its market segment can be very useful. For intraday time frames it can be used for breakout strategies. For daily/weekly time frames an entire branch of Technical Analysis has spun off called Intermarket Analysis (which may be said to include Sector Rotation or Business Cycle investing). Posting a comment will only take you 2 minutes, but it will be the strongest motivation for me to share something better.

Attached is a good reference for Sector Rotation. I will post some RS strategies when there is sufficient interest or I get some free time.

This is one of my favorite books. If you are a discretionary trader stop reading after chapter 1 (or 2, cant recall) where the author talks about bias in marking chart patterns. If you are interested in automated trading or automating your trading it can deliver you solid concepts. That's why I liked it. I also have some seminars by same author on data mining and backtesting traps/mistakes which helped me much.

Stress is certainly bad for perceiving ability. Food and lifestyle can effect levels of stress. Drinking, junk food and porn all increase stress. Learning new sports or arts, adventure sports, yoga, a vacation in peace & solitude can help reduce stress.

Yes the bond market went up since stocks going down, but he was betting on Treasury futures and supposedly made 1000% return on that trade: Did George Soros win 10/1 return on S&P's US credit rating downgrade? | Mail Online 10 year T-notes

Hi, It's hardly couple of months since I joined TL... and I already feel home here. I posted this message earlier but feel like starting thread because few people may be following the introductions thread. So thanks to everyone that shares their insight and even beginners who's questions can make others re-think over what they're posting!

Just felt like saying thank you to all TL members for making it a great community!

The Asian markets are sinking right now. An insider was smart enough to short $1 billion at precisely the market top. Note that this news is dated 25th July: Investors: The $1 Billion Armageddon Trade Placed Against The United States

Maybe it will 'correct' and the time for correction has just started. Refer to sector rotation model (I included a link to Relative Strength in first post). Yes technically they are weak, and fundamentally there is room for correction. This implies stop adding your investments (title of thread). Global economy is a mess now, we both are on the same page. Refer to intermarket analysis & sector rotation again. At the start of recession money flows from stocks to gold and t-bills- and the prices of both advance. (T-bills may be a different story now because US rating downgrade by SnP, and the flow of money in this global mess.

OK I'm game now. Back up sufficient evidence on the myths or back off from such bias. Unlike you, I do not want to shout about my professional experience, but I do love criticism. I'm not talking about your perspective. Take a break from teaching and work on a large trading floor- you will understand what I'm saying. Please read critically before trying to help people with critical thinking. Try to understand the difference between prediction, anticipation and forecasing. Too theoretical, I do not want to discuss this.

Glad it helped you... You can 'paper trade' the combination approach on charts by assuming a max trade size of 10 units. It may seem complicated initially, but worth it, because it can smoothen your equity curve dramatically. I have put some possible scenarios in the AAPL example here, but it will precisely depend on your trading technique. (click on pic to enlarge)

:doh: I did'nt say that about trend followers... only about systems built on 'data mining and machine learning'. I'm talking about two BASIC categories. In that context you can even add people who trade on rumors, people who get a 'high' from betting.....

Thanks for mentioning that... my previous article on volatility and The Sin of Predicting and Anticipatory Trading are inspired by you. have a good weekend you too

There are basically two types of traders- anticipatory and reactionary. It is important to understand which type you are to avoid the sins of prediction. The meaning of anticipation, prediction and forecasting may seem just overlapping but understanding each approach can save you a LOT of time and effort. In Prediction the probabilities are absolute. You cannot predict something with probability 0.98. You predict it correctly or not, that is. Prediction is for fortune tellers, psychics and tarot readers. Prediction is NOT for traders. So if someone claims about predicting top/bottom you know that he is inflating ego to compensate for the lack of trading skills. Stay away from such people, which include many trading gurus. Forecasting is more of a scientific term. An error and probability is always associated with forecasting. There are lots of trading systems which base their trades entirely on forecasting future price moves. They may work or may not work, similar to a group of traders who may or may not make money. Now let’s come back to the basic two categories- anticipatory and reactionary trading. A reactionary trader is someone who identifies a price behavior rule, letting price confirm his thesis and playing the move after it has taken place, hoping for follow through. An anticipatory trader is someone who uses a premise to identify potential moves ahead of time and take a position before the price confirms this move. In reactionary trading you simply ride the NOW wave, while in anticipatory you bet on future price movements. A good example of reactionary trading is daytraders who trade on price discrepancies (scalpers). Someone trading with Elliott waves will is an example of the latter type. Similarly trend following systems are an example of reactionary trading while trend-exhaustion based systems are example of anticipatory trading. Some people hold that all type of trading is anticipatory, others that it is reactionary, and still others who say that it all depends on the way a strategy is defined. Trading systems which are built using data mining or machine learning are by default reactionary. They tend to fail horribly at outliers (unusual market events). There are some factors which determine your trading style: Your temperament Right brained vs left brained (arts vs mathematics background) Experience level People who venture into trading first must learn just what style fits them the best, and follow it. Jumping from one form to another at initial learning stages can waste a lot of effort. It's important to understand your time frames and take a real assessment of just how much risk/time you will have to devote to your trading. Lets take the example of AAPL on daily time frame. It showed a distinct trading range compression a month ago. Reactionary trading: The trader will watch the setup develop and wait every day *patiently* for a breakout. Each day place a stop-buy order at a level on which a breakout will be confirmed. A beginner reactionary trader would have very likely shorted at downside breakout in mid-June, and then reversed trade at end of June. Anticipatory trading: The trader will anticipate the direction of breakout during the consolidation phase itself. The trade will be initiated during the consolidation phase; buy near the bottom range of channel or short near the upper range of the channel. If the initial trade is a loser the trader will not reverse trade because doing so involves a ‘reaction’. Combination approach: The traders buys (shorts) in small quantity in anticipation of the direction of breakout during the consolidation phase. Then add to existing position if the breakout is in favorable direction or take a new position if the breakout comes in opposite direction of initial trade. This approach requires more skill and experience. Posting a comment will only take you 2 minutes, but it will be the strongest motivation for me to share something better.

I would like to agree with your view if I knew what exactly it is I would love to disagree with any generalized statement regarding trading

Yes right, for marking bearish divergence we need to connect highs, no exception. The fact that bearish divergence mostly occur in a uptrend is another matter.

Thats a good detail question. Uptrend is always marked by connecting lows; downtrend is always marked by connecting highs... you can take it as 'first law of chart reading" If you are connecting peaks on the chart, you have to connect them on the oscillator as well. You cannot connect peaks on the chart and compare against lows on the oscillator. Hope this in reference to my previous post clarifies.

Traderwinds, there are essentially ETFs to short for anything major you want to short from around the globe. I have few in my portfolio and will be adding some. There are many sites dedicated to them and just a google will help, I will be happy to discuss. I'm not sure how to use them in a retirement account though because hardly any of my short trades last for more than 9 months.

"I like uncertain environments because that's where the opportunities are. That's where I can out-analyze other people." For every fundamental but of info that is bullish, one can find plenty of bearish info. Similarly show a chart to 10 technical analysts- half of them go bearish while half of them are bullish. The funny thing is, if a majority of people using either FA or TA have a common opinion the market defies them by moving in opposite direction.

Hi Tams, I almost fell from chair at your first post (before edit). Let me clarify. I'm done way past the stage of generalizations. Generalized one-liners can be expected from beginners but it was a surprise from you. I'm referring to type of statements like "MA crossovers do not work", "tap reading does not works", "Elliott waves can forecast magnitude of imminent moves", "past historical market behavior is not likely to be a guide for this unusual current event"..... To say not to refer historical market behavior puts everything in question- TA, FA, QA or whatever. I think you did not read further to the first point. I mentioned several reasons why "this crash is unlike any similar past instances"...

The recent crash was unexpected in the speed of fall- going down more than 10% in 10 days straight. I didn't see this moment of truth coming so fast and furious. Two stocks still hold strong AAPL and KO. To answer a PM Refere here and here.The RSI has been reflecting a strong uptrend since since past 12 months by staying above the 40 level and penetrating 70 level on the upside. Always mark a bearish divergence with peaks and a bullish divergence with troughs. A bearish divergence occurred in the uptrend in May-Jun. Most recently the uptrend has been put in question reflected by the RSI dropping to 30 area coming down from 70. This indicates a sideways market. You can trade currently using a overbot/oversold strategy.

Nevermind, all investors have taken a hit (Moment of Truth for Stock Investors) . I'm too busy with my stocks to look at yours.

Well, didn't mean to sound insolent or anything. I'll come back to discussion after market close.