There are many kinds of, and opportunities for,
diversification. For example, a company could be based
on just a single product, or an array of products for
the same market, or an array of products for different
markets. Likewise, a mutual fund could be invested in
multiple companies in a single market, or in multiple
companies in many markets. A mutual fund could also
invest in a combination of companies, bonds, and
commodities. SectorSurfer uses yet a different kind of
diversification that is called serial diversification,
where one invests in multiple stocks or funds, but
invests in only one at a time.
Serial diversification, directed through owning the one,
and only one, best trending stock/fund in a set of
candidates not only addresses the investment objective
of improving returns, but also addresses the companion
investment objective of risk reduction by inherently
avoiding the trend laggards. It is instructive to note
that a survey of SectorSurfer Strategies demonstrates
that returns are inversely proportional to the
diversification of the constituent stocks/funds of the
Strategy. Stock Strategies produce the highest returns,
sector fund Strategies next, and broadly diversified
fund Strategies the least. Although risk is
significantly reduced for each through serial
diversification, it is primarily the longer term risk
that is reduced through avoiding bad performance periods.
However, since the Strategy's stocks/funds are
individually owned one at a time, their
overall short term volatility is inherently
embedded in the Strategy. Fortunately, there
remains additional opportunity to reduce risk
through post-surfing diversification.
Consider the four TopDog Stock Strategies shown
to the right. Each is composed of a dozen
individual stocks representing a separate slice
of the market. It is easy to see that these
Strategies are not well correlated simply by
comparing the general character of the charts.
Thus, because they are fairly uncorrelated, a
portfolio that holds all four of these
Strategies would certainly have less risk than
any one of the individual Strategies.
Having a Portfolio with multiple Strategies is
particularly important when investing in stock
Strategies because individual stocks have daily
volatility risk as much as 3.5 times higher than
the S&P500 and can suffer significant one day
drops. That's why a prudent investor risks no
more than 20% of his assets in any one stock or
commodity. Of course, sector fund Strategies and
asset class fund Strategies are already fairly
well diversified, thus post-surfing
diversification is not as important, but still
will offer worthy benefits in various measures
Portfolio-of-Strategies is an
weighted average performance of a set
Strategies. Click the chart thumbnail to the right to
view the Portfolio performance of the combined
four Strategies. Note on the square risk-reward
chart how the Portfolio's yellow spot has moved
meaningfully left indicating significant risk
reduction. The comparative performance measures
in the table below clearly demonstrate the
significant value to post-surfing
diversification, particularly with stock
Chart: Click to Enlarge Image
How to Make a Portfolio-of-Strategies
Portfolio-of-Strategies is an allocation weighted
average performance of a set Strategies. A portfolio algorithm
is one of
"diversify and rebalance" versus selecting the
one best Strategy as is done in a
Strategy-of-Strategies. Investing is like eating dinner. If
steak, salad, and pie are on the menu, you can choose to
cook, present, and eat them separately, or you can toss
all of the ingredients into a blender, heat, and serve.
The reason we don't do the latter is
the same reason why your Portfolio's performance is
you surf first then diversify (combine) later.
"P:" Identifies a
Strategy as a Portfolio
when it is the first two characters of its name. In the
example Strategy listing to the right, the 5th one is
named "P: TopDog Diversification." When the SectorSurfer
algorithm sees the name begin with P: it knows that you
have designated it to be treated as a Portfolio. A
Portfolio's chart has a few notable differences that
will be discussed below, and also restricts ticker
symbols to be representative of a Strategy as specified
identifies it as Strategy #
where nn does not have a leading zero if it is only a
is its relative allocation weight
in the Portfolio. In the above example, the ticker
identify Strategies #1,
and their relative allocation weights of
respectively. In this example, the relative allocation
weights sum to a value of 19 making the percentage
allocations: 3/19 = 15.8%, 7/19 = 36.8%,
5/19 = 26.3%, and 4/19 = 21.1% respectively. Each
of these values are shown adjacent to its Strategy name on
the Portfolio chart above. A Portfolio may reference any
Active Strategy or Sandbox Strategy.
is the ticker symbol that will appear in the
BUY and SELL portions of the Trade Information column.
It is really more of just a place holder because there
never really is any BUY or SELL, other than to
occasionally "rebalance" your Strategies back to their
target allocation weights, or optionally adjust the
target allocation weights to match the account values.
is used in the Portfolio chart algorithm to maintain the
relative allocation weights of the Strategies. In
practice, most people will not be able to rebalance
between Strategies because the Strategies may be
managing separate accounts, such as IRA, SEP IRA, 401K,
529 Education, or taxable accounts, between which
balance transfers are not allowed. If you actually are
interested in periodic rebalancing, doing so once a year
is more than often enough because it is easily shown
that long term performance is virtually identical
rebalance monthly, quarterly, or yearly. While the
algorithm can rebalance freely and often, there is no
reason to believe you must do the same.
Due to space limitations on the chart, only the first 8 Strategy
ticker symbols will be shown on the chart,
but all will
take part in the calculations and charting.
2. When you click the chart
icon, there will be a few seconds of delay before the
chart is shown because the
charts must be made fresh each time just in case you made
changes to one of the underlying Strategies.
If you include a normal stock or fund ticker symbol
within your Portfolio-of-Strategies, they will be
a default allocation
weight of four as we are unable to otherwise
assign allocation weights to ordinary symbols.
• Allocation Weight and Symbol Calculator
This calculator will generate allocation weights and the
corresponding Strategy ticker symbols for SectorSurfer
Portfolios simply by (a) entering the
Strategy # on the My Strategies page, (b) entering the value invested in
each Strategy into the Value column below, and (c)
clicking the "Produce Symbols" button. Although the
is always a simple integer from 1 to 9, the calculator
typically balances weights with a net average allocation
error less than about 4%.
Keep in mind that this is not an
accounting exercise where the object is to count pennies
accurately, but rather it is a finance exercise where
the object is to understand and plan how and why
investment choices are improved. The Portfolio chart is
a tool for examining how different Strategy choices and
different funding levels affect the risk and return of
your overall investment portfolio.
How to Make a Motif Portfolio
A Motif Portfolio
is probably best described as your own custom themed ETF
— basically a basket of up to 12 stocks (or any ticker
symbols) that you believe are meaningful together. The
Motif Portfolio's resultant output is the simple equally
weighted average of the performance of its constituent
ticker symbols. You could create your own sector fund
for Space Exploration, Organic Food, or Social Media,
for example. A
Strategy is designated as a Motif Portfolio simply by
in the start of its name. It can then be referenced/used
in another of your Strategies just as if it were an ETF.
Motif Portfolios are free because they render no
buy/sell decision, and may live in either the Active
Strategies or the Sandbox Strategies areas.
Note: Since our ticker symbols are
limited to a length of five characters, there is no
means available to specify an allocation weight for a
stock or a fund within a Portfolio, and so we assign
them allocation weight of four by default. Thus, you may
mix normal ticker symbols (having allocation weights of
four) with the special allocation weighted ticker
symbols for Strategies described in the previous
paragraph for a Portfolio-of-Strategies.
Portfolio Ticker Performance Bar Chart
Portfolio Ticker performance bar chart allows a quick
performance comparison between the constituent ticker
symbols composing in the Portfolio, whether they be
Strategies, ETFs or stocks. When you
click one of the 3-Yr, 10Yr, or All-Yr blue buttons in
the lower right portion of the main chart, the time
scale will change accordingly for both this return bar
chart and the main logarithmic line chart.
• Quarterly Return Probability Distribution
chart shows the relative likelihood that a particular
return will be achieved during any given quarter. Many
important things about a Portfolio can be learned from
First, the shape of the S&P 500 curve is close to the
bell shaped curve of a normal random distribution, but
notably has a particularly fat negative tail. This means
large drops are actually more common than would be
predicted by standard statistical mathematics.
Second, the spike at about 1% return for the Portfolio
corresponds to a 4% annual return, and is the average
return for a money market fund in past years. The spike
is the signature of StormGuard taking Strategies to
$CASH for extended periods of time during down markets.
Third, while the two curves are scaled to have equal
area beneath them, it is notable that the S&P 500 is
higher on the left half and lower on the right half of
the chart. In effect, the act of SectorSurfing reduced
the probability of lower returns (area in pale red) and
increased the probability of higher returns (area in
Fourth, the Portfolio still has plenty of negative
quarterly returns to go around. Although reduced, they
are far from eliminated. SectorSurfer's algorithm is
clearly can't predict or react to sharp market drops, as
should be expected given that many many days of
data are required to reasonably extract the trend signal
buried deeply in volatility noise. Randomly occurring
punctuated events (such as volcanoes,
financial/political debacles, or blowout earnings
reports) upset old market trends and begin new and
different trends. The important takeaway message here is
that SectorSurfer will not save you from sharp
downturns, but will save you from prolonged downturns,
and will find the best trend between well spaced
Building Custom Strategies
• Great Strategies Overview
a great Strategy is like cooking a great dinner. If
you randomly select 10 food items from the pantry,
it's possible that a good chef could find a way to
make a reasonable dinner, but not a great dinner.
However, if you select 10 food items based on the
chef's recipe, the chef can whip up a superb dinner.
Likewise one must choose stocks/funds for Strategies
wisely. Please click and view the short video to the
right to quickly and graphically see what matters in
building a great Custom Strategy. Further review the
important concepts follow below.
Clones versus Sectors
are no shortage of funds that are clones, or nearly clones
of the S&P 500 market index. The charts to the right
alternate between one with six nearly identical
well-diversified Fidelity mutual funds, and one with six
fairly different Fidelity sector funds. A 30%/yr. line is
plotted on each for reference.
The yellow line is what SectorSurfer can do with each set of
funds when only the one best trending fund is owned each
When all of the funds are nearly identical, there is very
little to squeeze out of them by surfing from one to
another. However, the improvement here still was about 3%/yr.
above the average performance of the group.
However, when the market is deconstructed into its
constituent economic sectors, one finds marked differences
in performance between them that vary over time. When these
differences persist for medium to long periods,
SectorSurfer's algorithms can profitably direct investments
accordingly. In this example, the improvement was about
18%/yr. above the average performance of the fund group.
The takeaway from this is that to build a high performance
Strategy you need funds/stocks that have notable trend
differences between them. The most notable differences are
found between individual Stocks, then sectors, then
countries, and lastly asset classes. Although individual
stock can provide the most oomph for returns, they have
significantly more volatility and are not likely to repeat
initial growth spurts characteristic of their early lives.
Conversely, market sectors and asset classes live forever
and continuously rotate from one to the next as the economic
Common Mode Noise Reduction
the chart to the right, one can see that the first five
sector funds have what is called "common mode noise" because
their short term movements are well correlated. Conversely,
the short term noise of the gold miner and bond funds are not at well
correlated to the first four.
In order for the algorithm to dependably select the best
trending fund, sufficient noise must be eliminated to
reliably extract the trend signal. Since "the best" is an
act of comparison, then differential noise reduction is what
The differential noise between the first four funds is
really pretty small compared to the differential noise
between any of them and either the gold miner fund or the
After the punctuated event (market drop) in August, one can
see trend differences start to develop between the four
sector funds that become well established toward the end of
2011 and into 2012.
However, the noise of the gold miner fund is measurable
larger than that of the sector funds and is sometimes
correlated with the sector funds and other times is
oppositely correlated. Conversely, the bond fund has
comparatively almost no noise. The differential noise for
either of these two funds, compared to the sector funds, is
much greater than the differential noise between any two of
the sector funds. Addition of funds with high differential
noise to a Strategy can have consequences!
The first consequence is that if one adds either of these
two types of funds to a sector fund strategy where all
sector funds are short-term correlated as shown in the above
chart, the SectorSurfer algorithm will usually (but not
always) increase the amount of filtering so that it can
optimally extract the trend signal from the remnant
differential noise. Increased filtering leads to longer time
constants, more sluggish decisions, and an increased
susceptibility to sharp trend reversals.
The second consequence is that along with the advent of
greater noise comes the increased probability of not
selecting the best fund, but instead selecting one with
lower performance because its higher noise mislead the
Money market funds and bond funds have the problem of having
comparatively too little noise, whereas commodity funds have
the problem of having comparatively too much noise.
Commodities include: precious metals, real estate,
chemicals, currencies and specific agricultural items. All
of these are different in character from funds of companies
that manufacture products. They move to other drum beats.
You may be most surprised that real estate (REIT) funds are
in this group. They are often thought of as sector funds,
but in reality they are highly sensitive to interest rates,
employment, and land values - none of which are related to
profitability derived from manufacturing products.
to Build a 401k Strategy - Just 8 Simple Rules!
All of our Listed
401k Strategies were built with the simple
rules listed below — and you can too, with no prior
experience! The reason this is true is that 401k Plan
Custodians are inherently excessively conservative, and thus
all 401k Plan fund lists contain broad asset class funds and
index funds, such as US Large Cap, EAFA International Index,
Russell 2000 Index, etc. As a result, it is easy to
make a concise set of rules for building a SectorSurfer
401kk Strategy from them. (Note: If you are one of the lucky
ones with a company plan that allows you to dabble in sector
funds, be very glad, and keep in mind that the below rules
start bending a bit as you incorporate funds that are more
volatile or independently whack-a-doodle.)
In order to get started, you must first obtain the current
fund options list for your 401k Plan. If you don't already
have that, your company human resources manager can provide
it to you. Note that some plans offer more of a defined
benefit, which is a guaranteed payment based on annuities
rather than a mutual funds. Unfortunately, you cannot trade
annuities like you can mutual funds, thus SectorSurfer cannot
help you with an annuity-based retirement plan. However,
most of the time you can convert an annuity based plan to a
mutual fund based plan so that you can use SectorSurfer.
Generally you can quickly tell the difference because annuities have names, but no ticker symbols,
funds that can be traded always have ticker symbols.
If you have questions about what can be done, or would like
help building your 401k Strategy, please
Click This Link
to contact us and make an inquiry. You will be strongly
encouraged to do as much as you can by yourself (this is a
do-it-yourself site), and then ask for assistance. Be sure to send us what
information you can so we can help you better. Note that
while the following rules-of-thumb will produce an excellent
Strategy, there may be reasonable exceptions to some of the
rules depending on the nature of the fund in question. So,
use these rules as a starting point, and then tinker.
Exclude money market funds.
StormGuard provides a much smarter means for going to $CASH.
Exclude most bond funds. Pimco Total
Return and long-term treasury bond funds are sometimes
Exclude Lifecycle funds, which are
an asset class mix compromise that never helps Strategy
REIT funds (real estate investment trust).
Their commodity-like character reduces trend reliability.
small-cap index funds. They are more
chaotic and disruptive for 401k fund
Exclude your company stock. Individual
stocks are generally too chaotic and
disruptive for 401k fund Strategies.
Include at least one from each remaining type,
such as large cap, mid cap, world regions, value, growth,
8. Click the
information icon, click the Show
Advanced Options button, select
then if you
have a treasury fund or a bond fund, put its ticker
symbol in the Bear
Symbol text field and verify that it helped.
• Why Taking Control Urgently Matters
and Rebalance? Why Be Average?
The financial industry has hypnotized us into
believing diversification and rebalancing is the only
worthy investment strategy. But diversification
inherently means owning a little bit of everything —
which is the formula for achieving precisely average
performance! Rebalancing further ensures we won't
stray far from average. No other industry proclaims
average performance is the best you can achieve.
Fortunately, it's not true here either.
Change the Game!
To achieve a different result requires a
different approach. Price momentum has long been proven
the best predictor of future returns. Simply by owning
momentum leaders and avoiding momentum laggards one can
simultaneously improve returns and reduce risk of loss.
No diversification compromise! SectorSurfer further
maximizes performance utilizing digital signal
processing theory and automated strategy tuning.
Extra 10% Really Matters
Nest Egg Value chart illustrates how an
additional 10% annual return compounds over 15 years to
produce a nest egg four times the value it would have
otherwise had. The earlier you start, the greater the
multiple. It really matters!
The Nest Egg Annual Income
chart illustrates how portfolio return affects the
inflation-adjusted annual income you can take, assuming
a $100k nest egg, 2.5% inflation, and 30 years of
retirement to fund. In the illustrated example,
investing in the S&P 500 would likely allow an income of
$14,000/yr. However, earning an extra 10% increases it
to $36,000/year. Again, it really matters!
• The Economist:
Momentum in Financial Markets. A compilation of
industry studies and expert opinions.
• The Prudent Investor Rule
Prudent Man Rule stems from the 1830 court
decision of Harvard College v. Amory instructing
trustees to "observe how men of prudence,
discretion and intelligence manage their own
affairs, not in regard to speculation, but in
regard to the permanent disposition of their
funds, considering the probable income, as well
as the probable safety of the capital to be
invested." This is the basis of the 1994
Uniform Prudent Investor Act. While the Act
"prudent investing ordinarily requires
diversification," it further
"there is no automatic rule for
identifying how much diversification is enough"
as it depends on the circumstances of wealth,
age, taxes and risk tolerance. Let's call it the
Diversification Uncertainty Rule.
Diversification Types: Horizontal,
Armed with the wisdom of the
Diversification Uncertainty Rule;
let's consider how the different types of
diversification can help an "ordinary investor"
with "ordinary circumstances," starting with
• Horizontal Diversification is
like a sector fund that invests in multiple
companies in a single market.
• Vertical Diversification is
like a balanced fund that invests in multiple
markets and/or asset classes.
• Serial Diversification is
like serial monogamy and is what SectorSurfer
Strategies do by sequentially owning the one,
and only one, best stock/fund of the Strategy's
companies, sectors, or asset classes.
Asset Class Fund Strategies
These Strategies, like most 401k
Strategies, are inherently well diversified and
thus are sufficiently prudent.
Sector funds are diversified against pops and
drops of individual stocks and apply serial
diversification to reduce sector risk. These are
Stocks & Commodities Strategies +
Individual stocks and commodities have daily
volatility risk as much as 3.5 times higher than
the S&P500 and can suffer significant one day
drops. A prudent investor risks no more than 20%
of his assets in any one stock or commodity.
Five Strategies produce useful
• Fund Minimums, Hold Times & Fees
Fund Classes: Clones w/ Fee Structure Differences
It's typical for mutual fund companies to create clones
of their funds that differ only in the fees charged. For
example, FELIX, FELCX, FELAX, FELTX, and FELBX, are all
clones of FSELX, Fidelity Select Electronics. The assets
of each are held and managed in common; just the fee
structures and trade hold rules vary to better suit
retail, advisor, custodial and institutional markets.
Some companies, such as BlackRock, offer fund classes
requiring minimum purchases as high as $1Million, or
fund classes with fees on a sliding scale of the amount
Hold Time & Early Trade Fee
If we have this information, you can see
it in the Find-A-Fund popup and in the fund name when
you put the mouse pointer over a ticker symbol.
Strategies with fund hold times should use the
Trade Automatic setting to abide by these
limitations. Funds with 30-day hold periods, such as
Fidelity Sector funds, are no problem. Funds with
holding periods beyond 60 days start to become
problematic in a changing market and should be avoided
Online brokers always provide hold time and early trade
fee information. Verify your funds reflect it properly.
Brokerage Trading Fees (Commission)
Commission-free trades for lame funds are never a good
2nd Rule: $50 trading fees at a
brokerage for prominent mutual funds is excessive.
Consider an account at the mutual fund company.
• Fund Availability Depends ...
Fund Classes: Clones for
Retail, Advisors, Custodians, and Institutions.
It's typical for mutual fund companies to create
clones of their funds that differ only in the
fees charged. While the assets of each are held
and managed in common; the fee structures and
trade hold rules vary to better suit the retail,
advisor, custodial and institutional markets.
Each fund company has its own class codes, and
each has its own set of hold time and early
trading fees associated with each fund class.
Whether you select a Strategy of funds built by
someone else or you select funds for your own
you must determine that each fund is actually
available to you based on the
class of customer you are.
search on Yahoo Finance can help identify fund
The Bottom Line
Ideal fund terms include no initial
sales charge, no deferred sales charge, no
minimum hold period, and no early trading fee.
Funds with these terms exist, but generally
impose a 90-day freeze on further trading if you
buy and sell them in less than 30 days twice in
a 90-day period. This isn't a problem for
month-end trading Strategies. Likewise, funds
with 30-day hold periods and early trading fees
are also not a problem for month-end trading
Strategies. Funds with front or back end sales
charges must always be avoided!
Sectors & Asset Classes
Rotation vs. Fitting
implies something will be back time
and time again, whereas fitting
implies it has more sporadic
properties that just happen to meet
the current need. SectorSurfer's
algorithm is agnostic as to which of
these is really the case and simply
strives to select the one best
trending stock/fund of the
Strategy. The question for investors
a superior past performance imply a
superior future performance?"
The answer lies in whether the
performance was based on a
rotational sequence or a fitted
Sector Rotation occurs as
the economy cycles from boom to bust
and back again, favoring
different market sectors during
different portions of the economic cycle.
If you think of each market sector
as a piston in your investment
engine, the smoothest, most powerful
ride will be achieved when each of
the major market sectors is
represented in your portfolio.
Market sectors will still exist
decades from now regardless of the
fortune or demise of individual
Only by owning the trend leader and
avoiding the laggards can one
simultaneously improve returns and
reduce risk. That's
True Sector Rotation!
• Asset Class Rotation
is another dimensional
slicing of the markets, typically
dividing its universe into large cap
stocks, small cap stocks, foreign
stocks, bonds, and treasuries.
classes will always exist
regardless of the fortune or demise
individual companies, each rotating
in and out of favor throughout
the economic cycle.
• Individual Stocks are
constituent components of sectors
and asset classes, and thus
inherently have a rotation component
to their performance. However, the
most successful growth companies
typically have just one historical
period when they truly were
rising stars, doubling in value many
times over a period of years.
Eventually market saturation limits
growth and they become a stodgy large
cap stocks, or lose their way and
Expecting a dozen past
rising stars to be future rising
stars truly is gold fever talking.
• Freshly Fit for Duty?
Strategies built from equities that
primarily performed well in the past
because of sector or asset class
rotation are inherently fit for
future duty. However, if rising star
performance is sought, the Strategy
must be composed of stocks that are
current rising star candidates, not
those that were shining brightly 15
years ago. We recommend that you
periodically (annually) refresh the
• Ultra or Leveraged Funds
Leverage is used to buy more
than $X worth of investments
with only $X of cash by taking
out a loan to pay for the excess
amount purchased. For example,
in a typical home purchase, you
might be required to put down
20% of the home value and then
take a mortgage loan for the
remaining 80%. This would be
5:1 leverage since you only have
20% skin in the game. In the
stock market it is called a
margin loan. Margin is defined
as the portion that you actually
own. For example, if you put
down $100K for $150K worth of
stocks, you used 50% leverage on
your money and your margin (what
you own) is 66.67% of the total.
Leverage Also Multiplies Risk
Leverage can be dangerous -
witness MF Global, Lehman
Brothers and Washington Mutual.
These banks/brokerages were
allowed to use over 30:1
leverage on various bonds and
which means they only had 3%
skin in the game. A drop of more
than 3% in the value would mean
that their entire equity had
been lost and they had gone
bust. Guess what happened? This
is also the reason why so many
people who were allowed to put
down very little on their home
purchases are now under water
and owe more than the home is
While you can't directly apply
leverage to stocks or funds in a
retirement account, you can own
inherently leveraged ETFs and
mutual funds in a retirement
account. It is because
inherently leveraged funds
actively adjust the margin back
to a safe level daily that you
can never go bust.
When you make use of 2x
leveraged funds the daily
volatility will be magnified 2x
and produce a much bumpier ride.
However, your long-term returns
will be double ... hopefully to
• Data Download Spreadsheet
By clicking the
History icon on the My Strategies page you can view the Trade Signal History for the Strategy along with numerous other statistics useful in your analysis of the Strategy's character .
At the bottom of the Trade Signal History listing you can
further click the
button to download a CSV (comma
separated variables) spreadsheet of all
the important Strategy statistics
and trade signal history. The control bar along the topside of the charts also contains a CSV button, which when clicked will also retrieve the spreadsheet.
• Strategy Return vs. Execution Delay
How Returns are Calculated
Strategy returns are
calculated using the closing prices one
market day after a trade signal is generated.
If you are trading mutual funds, it
should be easy to exactly match the
reported performance of the Strategy -
provided you trade on time. If you are
trading stocks or ETFs, you would have
to put in an effort to try to trade at
the end of the day - but you could do
it. But, that gives you a whole day to
try to get a better price by one means
or another - is that not part of the
in mind that SectorSurfer is not an
accounting tool for tracking every
nickel, but rather it is a
finance tool for
improving investment decisions. They are
two very different things.
Execution Delay Example
The chart to the right was produced with
the aid of the desktop software version of
SectorSurfer which can simulate imposing
a delay in trade execution following a
This example Strategy "Fidelity
Simple Sectors" is
representative of the effect for
Strategies in general. While the plots
for other Strategies wiggle differently,
as would be expected, the story is the
same. A short delay in execution is
generally pretty meaningless in the
scheme of things.
Net-net, while the market may open up
or down and may vary widely over a day, what is
important is not the change from the
closing price, but the
difference in change between the Buy and
Sell over this short interval. The
majority of variation is common mode
noise. Thus, simply be executing both the Buy
and Sell transactions at approximately
the same time, the short-term market
noise is inherently subtracted out and becomes
almost irrelevant. Furthermore,
regarding any differential noise that remains, sometimes you win and
sometimes you lose, but in the long term what matters is
the average of many such trades. Given
that there are about 4 Sells and 4 Buys
per year, it is apparent from the chart
that the average effect per trade is
really quite small and arguably is lost
in the noise the grand
scheme of things.
However, it should be noted that when
trading individual stocks or commodity
ETFs, there is significantly more
in the data and the wobbles in the line
shown above would be expected to be
larger. Significant gains and losses
often occur in a single day for
individual stocks, and shifting the
decision day by a few days would be
expected to result in some lucky, or
• Advanced Charting Options
Flex Cart Span
The Flex Chart refers to the chart made by clicking the top blue chart
button on a SectorSurfer chart, and
always uses "3-Years" as the default
value, as can be seen in Chart-1 below.
Valid entries for the Flex Chart Span
specification include specifying the
number of years (such as
8.33), a date
(mm/yy/dddd), or any of these case
BornOn. The shortest time span accepted
is 30 calendar days. If a date is
selected that is not a market day, the
specified date will change by a day or
two accordingly. When the Advanced
Options window is initially opened, the
Flex Cart Span value is set to its
default value of "3", meaning that a
3-year span chart is specified.
Sometimes when you look at a chart you
may wish the upper price chart had "less
spaghetti" so you can see the funds of
interest better. When you check this
box, the chart will be rendered with
only the top four trending stocks/funds
along with both the Strategy and white
White Reference Index
This option determines what is plotted
in white on the chart as the comparative
reference fund. The
option is the default
setting used by SectorSurfer. It uses
the dividend adjusted S&P 500 as the
reference unless the name of the
Strategy includes any of the words
"income," "bond," or "safe" in any
form, in which case it then uses the
Lehman Bros. Aggregate Bond Index. Of
course, specifically selecting the
500 option will cause it to be used, and
specifically selecting the
option will cause the Lehman Bros.
Aggregate Bond Index to be used.
Average option will cause
it to use the equally weighted average
daily performance of the constituent
stocks/funds in the Strategy that have
historical data on that day.