How To -- Trading Strategy

There are several ways of using fund rankings to develop investment strategies. The basic concept is to always stay with the top ranked funds in different market conditions to benefit from the upward movements of the funds. One of the approaches I adopted and applied in the model trading portfolios is to hold one top rank fund at a time and switch to another top rank fund when its rank drops below 7th rank in the family or if its AMI drops below 0. It is important not to hold a fund with negative AMI. A fund is in an intermediate up trend when its AMI climbs above zero, and is in a down trend when its AMI slides down below zero. In a severe bear market, all the AMI’s in the fund family will drop below zero. By selling funds with negative AMI's, one can avoid the inevitable severe bear market in the future

By changing the number of funds to hold or using different trading thresholds, strategies with different diversification levels or aggressiveness can be developed. For example, a multi-fund strategy that gives better diversification can hold 2 or 3 top ranked funds at a time and a strategy with a more aggressive threshold (for example, 5^th rank instead of 7^th rank) will result in shorter holding periods and more frequent tradings. Here are a few examples of trading strategies:

Strategy A: Buy the number 1 ranked fund, hold it, and check fund rankings every week. When its rank drops below 5 or its AMI drops below 0, sell it and buy the number 1 fund of that week (of course with positive AMI.) If none of the fund has positive AMI, buy the money market fund or equivalent.

Strategy B: Divide your portfolio into 3 equal parts. Buy the first top 3 ranked funds, hold them, and check fund rankings every week. When one of the fund drops below 10th rank or its AMI drops below 0, sell it and buy the number 1 fund of that week (again, do not buy funds with negative AMI.) If you already owned the number 1 fund, buy the number 2, and if you already owned the number 1 and number 2 funds , buy the number 3 fund such that you will always hold 3 different funds in your portfolio (except for money market fund as warranted by market conditions.

Strategy C: I found this on a for subscription web site. It holds 5 equal part of top 5 ranked funds. Replace the fund when its AMI ranking drops out of the top five, such that you always hold the top 5 ranked funds.

For people who like the strategy in my model portfolios and want to follow them, here are a few ways to start with:

1. Jump right in 100% (higher risk),
2. Patiently wait for the next position change (may take a long time), or
3. Invest the same amount of money every week to the fund I hold until the next position change (kind of dollar averaging).

Once a strategy is developed, the key to success is to apply it objectively, consistently and not to stray from it. From my experience selling decisions are much more difficult to make than buying decisions. Thus it is important to make the strategies as simple as possible so that the trading signals when triggered, are unequivocally clear

Fund Rankings and FEMKX Updates, 3/26/2010

Weekly Average Momentum Index (AMI) rankings of HSA, SSPP, nSSPP, SELECT, ETF, iETF, sETF have been posted at http://ycprankings.atspace.com/

Stocks kept chugging along and all the major indexes closed up for another week. The S&P 500 index closed this week at 1166 up 0.58%, the Dow Jones Industrial Average increased 1.01%, and the Nasdaq composite index gained 0.87% for the week.

Here is the monthly update for our FEMKX timing system. We will buy FEMKX if its slow STO[15,1] climbs above 50, hold at least for a month, and sell it if its slow STO[15,1] falls below 75. We bought FEMKX on March 15 at $22.62 when its slow STO[15,1] climbed above 50. FEMKX closed this week at $22.78 with a gain of 0.71% after holding it for 11 days.

Fund Buy On Buy@ Sell On Sell@ P/L

FEMKX 03/26/07 $25.15 08/06/07 $29.53 17.42%

FEMKX 09/10/07 $28.98 12/28/07 $33.82 16.71%

FEMKX 04/28/08 $31.73 06/13/08 $30.81 -2.90%

CASH 06/13/08 $1.00 03/27/09 $1.00 0.0%

FEMKX 03/30/09 $12.31 01/25/10 $21.96 78.4%

CASH 01/25/10 $1.00 03/15/10 $1.00 0.0%

FEMKX 03/15/10 $22.62

How To -- Momentum Index

In my ranking tables, funds are ranked according to their Average Momentum Indexes (AMI). In technical analysis for stock price, there are several ways of calculating stock price momentum. For my postings, a fund's momentum is measured by the percentage of difference between the fund's price and its trend line. For example, a fund closes the week at $10 while its trend line is at $9, the momentum of the fund is (10-9)/10. If the fund close the week at $8 while its trend line is $9, the momentum is (8-9)/8. Note that a fund with price above the trend line has positive momentum and a fund with price below its trend line has negative momentum. A trend line is a smooth form of the fund price, usually it is the n-period moving average. The most famous trend line is the 200 day moving average, and I use the 28 week moving average of S&P 500 index as my guide for intermediate term market direction.

Every Friday after the market close, I download fund prices from Yahoo's stock quotes and calculate the momentum index for each fund in the ranking tables. The calculated momentum index, which I called it current momentum index (CMI) is still fluctuated quite a lot week by week because of its short term nature. In order to gauge a fund's momentum over longer period of time (intermediate term), I calculate the moving average of the CMI over several weeks to derive the average momentum index (AMI) for each fund.

The bottom line is that funds at the top of the ranking table are funds identified to have the strongest growth potential in the intermediate term (6 to 9 months). Different trading strategies can then be developed using the momentum rankings.

Fund Rankings Update, 3/19/2010

Weekly Average Momentum Index (AMI) rankings of HSA, SSPP, nSSPP, SELECT, ETF, iETF, sETF have been posted at http://ycprankings.awardspace.us/

Another winning week for the major indexes, although they closed the week with a down day on Friday. The S&P 500 index closed this week at 1159 up 0.86%, the Dow Jones Industrial Average increased 1.1%, and the Nasdaq composite index gained only 0.29% for the week.

As economy recovery gaining more traction, the momenta of most sectors get stronger and stronger. In SELECT ranking table, FSAIX is still the number 1 rank fund with high AMI while energy related sector funds showed sign of weakness. In the international arena, South Africa ( EZA) is rising up fast in iETF ranking table but Mexico (EWW) is still holding the top spot. It is also interesting to see that the domestic sector funds have higher AMI than the international funds in th past few weeks.

How To -- Fund Families

There are seven momentum ranking tables that I posted every week. I started this site in 2004 with 2 families of mutual funds, SSPP and SELECT. Later in 2005, I added the ranking table of ETF due to the popularity of exchange traded funds. SSPP is made up of 31 Fidelity mutual funds in my company's 401k plan at that time,and SELECT has 40 funds from Fidelity's SELECT sector fund group. ETF table was formed by 41 indexed funds which investor can buy and sell from any discount brokage house. I did not have a specific criteria for including a fund into the ranking table other than pick a few funds in different investment styles, differenct industrial and regional sectors. In doing so, I may overlook a few good performance funds. However, the intention is to capture the different sector or global regional growth trends at the different phases of economy cycle and trade the funds accordingly. As long as the funds in the family can cover as much as the whole economy

sectors with enough volatility, we should be able to profit from them with above market average return.

In 2007, my company changed the makeup of the funds in our 401k plan and reduced the number of Fidelity mutual funds. The reason I used only the Fidelity mutual funds in SSPP was that their price can be tracked publicly so that I can automate the ranking generation. In the new plan, a lot of fund prices can only be quoted through the plan and can not be found elsewhere. To overcome this change, I developed the rankings for all the funds in the new 401k plan, downloaded their price every week manually and posted them as nSSPP while keeping the old ranking table.

In addition to the change of SSPP, the popularity of exchange traded funds grew exponentially and more funds were offered by different large fund companies. After some studies, I added the sETF and iETF ranking tables to the weekly postings. sETF contains 40 sector index funds and iETF contains 30 international index funds. In general, funds in ETF, sETF and iETF have higher volatily and subjected to higher risk.

This year I started to post the rankings of the funds in my company's Health Saving Account (HSA) plan. There are only 15 funds in the plan and most them charge more than 5 % of transaction fee for every purchase. although the fund company will waive the transaction fee if you make the trade through the plan. If you are not in the HSA plan, I do not recommend you to trade these funds because of their high loads.

Fund Rankings Updates, 3/12/2010

Weekly Average Momentum Index (AMI) rankings of HSA, SSPP, nSSPP, SELECT, ETF, iETF, sETF have been posted at http://ycprankings.atspace.com/

Trading signal occurs in sETF model portfolio: Sell IHF, Buy ITA

Trading singal occurs in FEMKX timing model: Sell Cash, Buy FEMKX

Stocks continued their upward momentum this week. The S&P 500 index closed this week at 1149 up 0.99%, the Dow Jones Industrial Average increased 0.55%, and the Nasdaq composite

index gained 1.78% for the week.

The recent upswing has triggered a buy signal in our FEMKX timing model based on slow Stochastics STO[15,1]. The system went into cash mode on 1/25 and stayed on the side line for 46 days. The buy signal was issued because Its STO[15,1] stands at 57 above the threshold of 50. FEMKX timing model has worked every well for us in the past, and based on that record, I will treat this buying signal very seriously. In the sETF rankings table, the IHF was pushed out of the the top 7 ranks. We are replacing IHF with the top rank fund, ITA.

You probably notice that I have changed the ranking postings to atspace.com. I have spent some time on the new hosting site and found a way to keep the posting as close as possible to the postings before. Please let me know if there is any issue (broken links, .., .etc.) related to the new site.

Fund Rankings Updates, 3/5/2010

Weekly Average Momentum Index (AMI) rankings of HSA, SSPP, nSSPP, SELECT, ETF, iETF, sETF have been posted at http://ycprankings.awardspace.us/

Better than expected job reports gave stock markets a boost this week. The S&P 500 index closed this week at 1138 up 3.1%, the Dow Jones Industrial Average increased 2.33%, and the Nasdaq composite index gained 3.94% for the week. In the weekly charts, the slow Stochastics [15,1] of all the indexes have climbed above 50 indicating that the intermediate momentum is on the bull side. In the monthly chart of S&P 500 index below, the multi-year uptrend is still intact. The price is above the trend line and the monthly STO stands at 91 well above 50.

Google finally discontinued the googlepages.com where I posted my ranking tables. They moved my site to sites.google.com which can not accommodate the inline frame I used to setup my ranking pages. If you use my old link you won't see the ranking tables loaded correctly. I have moved the site to awardspace.us and the page layout is not as pretty as the old one. However, it is the content that counts :->. If you have enjoyed this website from the beginning, you would notice that the site has experienced several changes during the last 6 years. This just shows that it is not easy to singly maintain a website.