The objective remains the same for 2011... Profit by trading the ProShares Ultra QQQ (Symbol: QLD) and the ProShares Ultra Inverse QQQ (Symbol: QID).
I made a point earlier this year to re-name the revised Cheetum Market Indicator something else besides the CMI 3.0 but changed my mind, so now the CMI 3.0 lives and is already in sync with the previous version continuing the current QLD trade.
The CMI 2.0 was a single signal system (say that three times fast) that played the market fast and loose. I could only take so much fast and looseness so I made some serious alterations that resulted in the following changes:
"No Trade" Zones
This latest version brings back the "no trade' zones that CMI 1.0 used. This giveS the system a QLD bias because it does not allow trading of the QID under low volatility periods that occur after the close of a profitable QLD trade unless there is confirmation from one of the longer term signals. Historically, this has been worthwhile since it has removed 75% of the losing QID trades that have followed a profitable QLD trade in these circumstances.
Reduction in the Number of Trades
Under the CMI 2.0 system there were 50 trades opened over a five year period with a 46% winning percentage. During the same time period, CMI 3.0 completed 18 trades with a 56% winning percentage. The charts below prove that you don't need a high winning percentage to be profitable.
Risk vs Reward
The total return for the CMI 3.0 is slightly less than it's predecessor but this change was necessary in order reduce some of the down-side risk that was apparent with a single signal system.
Here's some CMI 3.0 propaganda, in chart form, that gives a broad view of total return and cumulative % over a five and ten year period...
Notice the directionless QQQQ's (orange line) versus the CMI progress (blue line).
A Multiple Choice of 3.0 Versions (Sigmund's First Prediction of 2011)
I chose this version of the CMI over several others due to the fact that I expect at least one or two multiple-month-long trends similar to 2003 (one straight line up), or possibly more like an inverted 2006 (gains the first half of the year followed by downside to the same degree).
This slightly bi-polar version of the CMI thrives in a trending market, and despises flat or one to two week-long, stochastic-type oscillations. Adjustments to changing market conditions have been built in, but not for all scenarios. This version actually lost 9% in 2005.
If traders start making a profit this year from following a typical 5,5 stochastic chart, (buying below 20, selling above 80), the CMI will be spinning it's wheels.
Year by Year Results
If you look strictly at the beginning of each year (Jan 1) to the end of the year (December 31), trade results for the CMI 3.0 versus the S&P are as follows...
YEAR _S&P500___ CMI 3.0
______________%Gain/Loss
2001__ -10.89_____+116.6
2002__ -22.99_____+89.6
2003 __+28.27 ____+99.2
2004__+11.01_____+32.3
2005__ +5.59______ -9.2
2006 __+15.24 _____+63.8
2007 __+4.89 ______+9.3
2008__ -39.33 ____ +94.1
2009 __+24.95____ +112.7
2010 __+15.09 _____+22.5
Since the last CMI trade of every year runs into the next year, let look at this another way.
If each trade result is, instead, applied to the year that it closed (a capital gain/loss perspective), the results are as follows:
YEAR_ CMI 3.0% Gain/Loss
2001 __+111.4
2002__ +105.1
2003 __n/a
2004 __+80.9
2005 __+12.2
2006 __+29.5
2007 __+53.0
2008__ +87.8
2009 __+101.3
2010 __+30.7
I'll do anything to make a loss disappear!
Regardless, 2005 was not a good year no matter how you slice it. Also notice that no trades were closed in 2003. This last trade opened in 2002 lasted 491 days!
Back-Tested Fiction
Finally, keep in mind that these are all back-tested results using estimates during 2001 to 2006. The QLD and QID did not exist back then so taking advantage of a leveraged trading vehicle would not have been possible.
Future of the Bright Blue Line
Look at the charts above. Where will that bright blue line end up 12 months from now? Will the upward momentum continue, or will it reverse course and experience the pull of gravity from Planet Reality?
Monday, January 3, 2011
CMI The Third
