Attention new members…

This model has generated very impressive returns but like any good system it also requires discipline to achieve its success. As a general rule of thumb with any trading strategy, we have found that most traders lose their discipline for two main reasons:

#1. They trade positions that have too much risk and this leads to incorrect trading decisions such as taking profits too soon, and selling to prevent losses at the wrong time. The best way to overcome this problem is to start slowly.
#2. They don’t understand and believe in the trading rules of the system.

The rules of this strategy are intentionally very simple to overcome the problem of systems being too complicated to understand or believe. Start slowly and develop your trust and belief in the strategy.

You do not need to start with real money, and you do not need to start big! Building bigger positions is easy once you are comfortable and knowledgeable. The most important part of getting started is finding the right low risk way for you to begin. The questions and answers below should help you find the best way for you to start.

How do I start trading this strategy?

You can start any time by simply creating a portfolio that replicated the model portfolio’s open positions in the actual percentages that are on. This will help ensure that your day-to-day performance is very close to the published results. The easiest way to begin is to follow the position recommendations found in the “Starting a Portfolio” section on the “Tools” page.

How much do I buy if the portfolio is only holding 1 ETF and the rest in cash?

The model is always assuming there are 3 possible positions. In this example there are two positions in cash and a new buy alert is issued. The model portfolio would then purchase a dollar amount of the ETF in the buy alert which is roughly equal to one third of the total portfolio value. You can find the precise position allocations and recommendations in the “Starting a Portfolio” section on the “Tools” page.

Will the trade alerts be sent via email or text message?

Every time the model gets a trade alert we will send an email to the address you used to register for the ETF Sector Plus Strategy. You can also choose to have a text message sent to you. In order to receive text messages you must register your text messaging phone number in the Manage Mobile Alerts section of the member area.

If you would like to see the history of recent alerts, you can view them listed in the Position Updates section of the member area. If you would like to see all open and recently closed positions, they are tracked, along with their returns, in the Model Portfolio area of the member area.

When and how often will I receive trade alerts?

All trade alerts are generated after the market closes. There will NOT be an alert every day. In fact, the model will experience entire weeks without making any changes.

Where can I find your free tool to track my personal trades?

We have created a free Excel spreadsheet for you to download that will help you easily track your trading (simulated or real) of the ETF Sector Plus alerts. Use the link, Trade Tracking Tool on the right side navigation bar in the member area to get this tool.

How much capital should I use to trade this strategy?

The question of how much capital a trader should allocate to any trade or strategy is going to have a different answer for every trader. Additionally, MarketGauge not licensed to be able to give that type of specific advice. A good rule of thumb is that you should start slowly.

Regardless of how you start, you should always limit your capital to an amount that represents a level of risk that you can afford to lose. We’d even recommend paper trading the model for several weeks or months so you can experience the strategy’s volatility before committing real capital. You’ll find a spreadsheet that we’ve created to help you track your trading (simulated or real) in the Trade Tracking Tool section of the member area navigation. This is a simple way to keep up your own version of the model portfolio.

Another good rule of thumb to get started is to view the ETF Plus Strategy in the same way you would normally view a single position that you would expect to hold for a long period of time. Even though this strategy is a “model based” approach to trading involving trading a “model portfolio” of 3 positions, this does NOT mean you should dedicate an entire account to this strategy. To start, we suggest that you think of the model portfolio as one position, or trade, that just happens to include up to 3 different ETFs for diversity.

For example, if you would normally buy about $8,000 to $10,000 worth of a stock for a trade then let’s assume you decided to use $9,000. This model works by dividing your allocated capital into roughly 3 equal parts for each position so in this example you’d allocate $3,000 to each position in the model portfolio. You can find the precise position allocations and recommendations in the “Starting a Portfolio” section on the “Tools” page.

How much capital should I allocate to each position?

You can find the precise position allocations and recommendations in the “Starting a Portfolio” section on the “Tools” page alert.

Do I need to wait for a trade alert to enter my first positions?

You can start any time. The best way is to follow the instructions we provide on Tools page.

How can I test this idea before committing any capital?

It’s a good idea to get comfortable with a trading strategy that is new to you before you take on any significant level of risk. This may be especially true here because this is a “model based” trading strategy that does not employ typical stop loss tactics. You should also anticipate that the profit and loss volatility will be higher than the general market. The higher volatility is one reason the model is able to outperform the general market so dramatically!

We created a Trade Tracking Tool for you to easily keep track or when you enter and exit positions and the resulting profit and loss. This is an easy way to “paper trade” in order to experience how this trading strategy trades. This can also be used to keep track of any real trading you do with the model.

How can I start slowly to limit my risk?

For most traders starting slowly (with very limited risk) is the best way to start any new strategy. This strategy is easy to start slowly and then build up as you get comfortable. Do not try to hit a home run immediately.

This model seeks to build wealth over the long term. It does not seek to make quick hit home runs. Your best first step is to get comfortable and knowledgeable of how to it trades. This will lead to simple, quick and correct trading decisions that will be easy to manage in minutes a week.

There are a couple of ways to start slowly, and both are probably best served by first getting the Trade Tracking Tool we created for you to track your trades.

Next, you can either paper trade the model or allocate a small amount of money to get started. Don’t focus on how much money you’re going to make before you first get comfortable with how the model trades. “Getting comfortable” means you’ll experience any volatility the model’s positions may experience relative to the general market. You’ll experience waiting for the model to indicate a change in the positions rather than focusing on pre-set price levels for exits and entries.

Once you have a little experience with the model there is nothing that will prevent you from doing more with it, so there is no harm is starting slowly, and with limited risk.

Where do I set stops?

We offer three different Sector models. Both the “Conservative” and “Moderate” have stops and multiple targets, while the “Aggressive” does not use any stops or targets – but rather enters and exits based on “rotations”.

The “Conservative” and “Moderate” model, in addition to “rotations” also has stops and targets. The current stop and target are displayed in the “Open Positions” page. Stops and targets are set initially and do not change until the first target is reached. The first few targets sell 25% of the original position, while the 4th target sells 12.5% of the original and the final target exits the remaining position. Stops always exit the full or remaining position.

What happens when my 3 positions are no longer equal dollar amounts?

Over time some positions will outperform others and create your 3 positions to be “out of balance”. When this happens you can consider rebalancing. The model rebalances twice annually in January and July. Sometimes the positions are quite out of balance and other times the differences are small. Depending on the current state of balance, the size of your trading account, and your own costs of trading, rebalancing may or may not make sense. At any time, you can check the current position allocations using the “Starting a Portfolio” section on the “Tools” page.

What’s the difference between a Strategy, a Model, and a Portfolio?

For our purposes, we define a strategy as a collection of indicators or trading rules that together generate buy and sell signals.  When you apply a certain strategy to a set collection of stocks or ETFs, we then have a model.  This model can be back-tested using historical data to see how it performed in the past.  Our “portfolio” is the three specific positions that the model recommends us to hold.

Why not use the Opening Range to trade these ETFs?

The short answer is that it was too complicated to model at this time. We designed and back-tested this strategy so that it would be easy to follow and execute. And it is good to know that the results are possible trading the model in the easiest possible way. However, you can use the model results as a guide for trading these instruments in any possible way. There is no reason why Opening Range and other types of MarketGauge analysis wouldn’t work on these ETFs.

What is the TSI rank?

This is our proprietary generated Trend Strength Indicator (TSI). It is one of the key parts of our model. We use this number to determine which three of the ETFs in our model to hold. You can view this number on the “Model Components” section of the website. From there you can see how all the different ETFs stack up and which ones might be the leading contenders to replace our current holdings.

Why Are You in an ETF that isn’t in the top 3 current Ranks?

For our initial entry positions, we take the top three ranked ETFs based on our TSI indicator.  Once we are in those positions, we implement an internal system that is designed to reduce unnecessary or excessive turnover in our holdings.  Our model calculates and compares the volatility of the holdings so that a position can move out of the top 3 but remain a holding until its TSI score diverges by a certain threshold.

This is a dynamic calculation that scales with the TSI and volatility of the positions – so the amount of divergence allowed can and will be different at different times.  In our backtest, we found this system dramatically reduced the amount of turnover while actually improving the overall performance of the model.

Why trade ETFs?

ETFs are great trading vehicles for a sector rotation strategy. Many of them are already created and organized around the idea of giving someone exposure to specific industries and sectors. They contain diversified holdings within the sectors that allows us to avoid much of the business and news event driven risk associated with holding individual stocks. They are also cheap, boasting some of the lowest fees in the industry.

Why are you using leveraged ETFs?

The latest leveraged ETFs are a great addition to our market toolbox. They offer the opportunity to gain more performance while still maintaining our concentrated sector focus. We have carefully selected the leveraged ETFs that meet a minimum volume criteria and have sufficient trading history to be incorporated into our model.

When we display a leveraged ETF in the Model Portfolio are it will have a “(3x)” next to the sector name. The “Conservative” model does not use any leveraged ETFs. The “Moderate” has access to a few. The “Aggressive” tends to use the most amount of leverage (and also bases the rankings off the leveraged list).

What is a “Quant Model?”

The ETF Sector Plus Strategy is called a quantitative model because we use a systematic method to calculate our ranking system and trade management. We can then “run” this model over the historical data to gauge its performance. We believe that the model’s performance is robust and should provide opportunities to outperform the broader market.

How do you buy at the open?

If you would like to place orders before the market opens and get the “open” price you should use an order called “Market on Open”. Each broker or trading platform may have a slightly different name for this type of order so check with your broker if you are not familiar with it.

This order is generally placed 5-10 minutes before the open and gives you the “open” price.  The open price is determined by a process where the pre-market open orders are evaluated by specialists which determine the market clearing price at the open.  You may also place market orders immediately after the market opens to enter these orders.  Your entry should typically be very close to the one described in the model.

If I am trading the Stops and Target model, and I am in my three positions, how can add funds to my portfolio?

You can use the instructions found on the Tools page. You can use a similar process to add funds as you would to initially setup your portfolio.