Market timing and risk indices FAQ
Market timing - FAQ Part I
Market timing in general
What are the mechanics of your market timing approach?
Our market timing models are proprietary computer-based systems that detect changes in the direction of stock and bond markets.
Each market-timing model consists of different subsystems. These subsystems incorporate mainly pattern-recognition techniques based on the prices of the underlying markets (e.g.: US stock market timing model for the S&P 500 index) and on some risk index-based indicators. The main emphasis during market timing strategy development has been on robust patterns, which should work in different market phases (back tests to 1871) and on their edge against random investment-strategies. The market timing models are 100% mechanical and are based on mathematical algorithms. The formulas are proprietary and are therefore not disclosed.
Each week we scan bond and stock markets to generate entries and exits. Based on the current and historical market conditions our market timing models will generate a BUY- or a CASH-signal. These signals are based on proprietary quantitative models. Once a market timing signal has been issued, it remains in effect until a new signal invalidates it. When our model issues a BUY-signal, it means it is time to buy the underlying market. When the market timing signal becomes a CASH-signal, it is time to sell (but not short selling) the underlying market and to move the money in cash until a clear direction is determined by our system.
So, a computerized market timing model is the way to go?
Market timing could be sometimes very dangerous. Many market timing models and strategies are not rigorously tested and are over-optimized and curve-fitted to historical data. But there are investment strategies which work across various financial markets and market types (i.e. bull markets, bear markets and sideways markets).
We think that we have developed a unique and promising approach to market timing. So, if you are looking for a sound and sophisticated market timing model, this website is for you.
But we are not a "get rich quick"-scheme and we do not offer any bogus "magic"-"mumbo jumbo"-"holy grail"-"dreamland"-"master of the universe"-system.
Do your market timing models ever make partial moves (e.g.: 50% investment)?
Our trading models are switching only between full investment (100% allocation) and no investment (0% allocation).
How many times a year will your trading systems switch a signal?
It varies. In a typical year, only 2-6 signals per trading system will be issued.
Are your market timing strategies optimized?
During the development of our market timing strategies it was not our objective to find the parameter values which generated the maximum profit on historical data (=back testing), because there is a tradeoff between the maximum profit and the robustness of a market timing model. Generally, the less a market timing strategy has been optimized, the more robust it will be in the future because every optimization includes the risk of equity curve fitting. The robustness of a market timing model is determined by the ability to generate market timing results in the future close to the results of the back test.
So, our objective was to design robust and stable market timing models. Therefore, we searched for a certain range of parameter values, within which the profits and other criteria's (e.g.: drawdowns) would be acceptable. These parameter values are settled in the center of the flattest parameter space. So, a minor market shift will not result in dramatic and negative equity shifts.
Do you guarantee results better than buy-and-hold?
No investment strategy can guarantee results better than buy-and-hold, nor guarantee an investment against loss in declining markets.
But does market timing work?
Market timing is not a crystal ball and it certainly will not make you a successful trader or market timer. Even if your market timing models are well constructed, they have been and will be incorrect in many cases, because markets are social systems and are not physical systems, where input A and input B always gives you output C. There is no holy grail and no perfection - only percentages of perfection.
So, most of you are familiar with the concept of buying stocks and bonds and prefer a "Buy and Hold"-approach. We think that buying and holding works for many people, because of the long term positive bias of stock markets. But sometimes this concept gets dangerous:
- Emotions (fear and greed) will undermine the required discipline.
- A "Buy and Hold"-strategy can underperform for long periods of time (e.g. US stock market: 1929-1954 (no inflation-adjustment); Japanese stock market: 1989-?).
- The financial markets are mirroring the battle between fear and greed and therefore they are NOT following a random walk.
Consequently, we decided:
- To discipline our self by using a computerized and unbiased approach for investing.
- To "time" the market in order to avoid long periods of under-performance.
- To use sophisticated computer-based models in order to discover trends in the fat-tailed distributions of the returns of financial markets.
So, the key to successful market timing is to use a 100% mechanical market timing strategy and model that completely removes emotions and subjectivity from the investing process. Objectively applying the rules and strategies of your market timing models most times will keep you out of trouble. But you also must have a money management system and the trader's self-discipline.
What currency is the base currency for your international market signals including US market timing signals?
We are issuing our market timing signals based on local stock benchmark indices "priced" in local currencies (e.g. US markets "priced" in US Dollars, Canadian markets in Canadian dollar, UK markets in British pounds and so on).
How often do we receive your market timing signals and risk index info? Is it send by fax, email?
Our market timing newsletter is sent to our subscribers via email on a weekly basis. Therefore our market timing models are run on a weekly basis (every weekend) and if a new market timing signal is generated, we add it to our email newsletter. That way, you don't have to check our website every week.
How do I get notified about signal changes of your market timing models?
For our email newsletter our market timing models are run on a weekly basis (every weekend) and if a new market timing signal is generated, we send out an email to all active subscribers of our email newsletter.
Can you please explain how I should use your market timing signals to profit?
Our website and newsletter have been prepared solely for informational purposes and are not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading or market timing strategy. The investments and the market timing signals discussed on our website and in our newsletter may be unsuitable for investors depending on their specific investment objectives and financial position. So, it is not our intention to provide individual investment advice. There are Registered Investment Advisors providing professional investment management services.
Do you sell your strategies?
We do not sell our market timing systems and algorithms.
No one can time the market - not even the experts.
Maybe you are right. We do not have the ultimate answer to your comment. And yes, a passive strategy like a "Buy and Hold"-approach works for many people. But we think that human beings are producing tradeable pattern and traces in the markets - and we do not think that the market is a random walk. So, our goal is to detect these patterns and to trade them. But we are only dealing with probabilities and once again: maybe you are right and we will miss the boat completely.
Bond market timing
Which US bonds do you trade? 10 year, 30 year or high yield?
We have normalized all bond systems internally for system development purposes with "continuous" 10 year government bonds with a par yield of 6%. For our own trading we are using mainly respective bond ETFs for 10+ year government bonds.
Do you rate Central European bond markets?
At the moment we do not issue market timing signals for Central European bond markets because of missing benchmark indices and trading instruments.
Currently we are tracking these bond markets:
|US bond market||tracked by Timertrac.com|
|German bond market||tracked by Timertrac.com|
|UK bond market||tracked by Timertrac.com|
|Australian bond market||currently not tracked by Timertrac.com|
|Brazilian bond market||currently not tracked by Timertrac.com|
|Canadian bond market||currently not tracked by Timertrac.com|
|Dutch bond market||currently not tracked by Timertrac.com|
|French bond market||currently not tracked by Timertrac.com|
|Greek bond market||currently not tracked by Timertrac.com|
|Hong Kong bond market||currently not tracked by Timertrac.com|
|Indian bond market||currently not tracked by Timertrac.com|
|Italian bond market||currently not tracked by Timertrac.com|
|Japanese bond market||currently not tracked by Timertrac.com|
|Mexican bond market||currently not tracked by Timertrac.com|
|New Zealand bond market||currently not tracked by Timertrac.com|
|Portuguese bond market||currently not tracked by Timertrac.com|
|Singaporean bond market||currently not tracked by Timertrac.com|
|South Korean bond market||currently not tracked by Timertrac.com|
|Spanish bond market||currently not tracked by Timertrac.com|
|Swedish bond market||currently not tracked by Timertrac.com|
|Swiss bond market||currently not tracked by Timertrac.com|
Stock market timing
Does your market timing model work on individual stocks?
Our stock market timing models trade primarily stock market indices, but our back-testing is always performed also on individual stocks of global benchmark stock indices.
Do you have a list which iShares ©-MSCI©-ETFs could be traded with your signals?
Before we could answer your question, we have to inform you that our website and newsletter have been prepared solely for informational purposes and are not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading or market timing strategy. So, it is not our intention to provide individual investment advice. There are Registered Investment Advisors providing professional investment management services. No endorsement of any third-party products or services is expressed or implied by any information, material or content referred to or included on, or linked from or to our web site and our newsletter.
|Australian stocks||MSCI© Australia Fund (EWA)||Austrian stocks||MSCI© Austria Fund (EWO)|
|Belgium stocks||MSCI© Belgium Fund (EWK)||Brazilian stocks||MSCI© Brazil Fund (EWZ)|
|Canadian stocks||MSCI© Canada Fund (EWC)||Chinese stocks||FTSE/Xinhua Ch. 25© Fund (FXI)|
|French stocks||MSCI© France Fund (EWQ)||German stocks||MSCI© Germany Fund (EWG)|
|Hong Kong stocks||MSCI© Hong Kong Fund (EWH)||Italian stocks||MSCI© Italy Fund (EWI)|
|Japanese stocks||MSCI© Japan Fund (EWJ)||Malaysian stocks||MSCI© Malaysia Fund (EWM)|
|Mexican stocks||MSCI© Mexico Fund (EWW)||Dutch stocks||MSCI© Netherlands Fund (EWN)|
|Singaporean stocks||MSCI© Singapore Fund (EWS)||South African stocks||MSCI© South Africa Fund (EZA)|
|South Korean stocks||MSCI© South Korea Fund (EWY)||Spanish stocks||MSCI© Spain Fund (EWP)|
|Swedish stocks||MSCI© Sweden Fund (EWD)||Swiss stocks||MSCI© Switzerland Fund (EWL)|
|Taiwanese stocks||MSCI© Taiwan Fund (EWT)||British stocks||MSCI© U.K. Fund (EWU)|
|US stocks||MSCI© S&P 500© Fund (IVV)||European stocks||S&P Europe 350© Fund (IEV)|
|Latin American stocks||S&P Latin Am. 40© Fund (ILF)|
Market Risk Indices - FAQ Part II
Stock market risk indices
Could your stock risk index reach a level when it would be indicating an imminent stock market crash?
Our stock market risk index indicates the potential risk of global stock market investments on a percentage basis. So, this stock market risk index does not indicate any imminent stock market crash.