Mutual funds

    We can use our market timing signals to trade mutual funds but we trade targets more than waiting for an intr-day signal. Consequently, the trading signals are more discretionary and less mechanical. This does not mean that the results are less than a more strict systematical approach. On the contrary, the human brain can adapt faster usually than any computer.  Because of the end of the day fill we try to anticapate the turning point rather than waiting for it to happen. We also will not take trades that we believe  will occurr simply because we believe that there is not enough potential for profit in the trade. We are right sometimes and wrong sometimes but this is the only way to limit risk. An example of this was on 11/9/00. We shorted the stock portfolio on that date but did not short the mutual fund portfolio. Why? The nasdaq was already down 40% at that point so the potential for profit was not high even if the signal was correct. But we believed that if we were wrong we could exit our stocks faster and limit our losses quicker and for less than we could at the end  of any particular day. We were right about the stock portfolio but wrong about the mutual fund side and could have made more money. Thats how it goes but we don't regret the decision because of the risk factor.

    There are time periods when this target oriented strategy works better than a technical system approach and there are times when it lags the system strategy. This is inevitable. However there are also times when sentiment becomes the over riding factor on which way to trade and both the system and the target approaches have to take a back seat. Thus, buying panic does not show itself very often but when it does it is the only logical action.

    Index funds are the best way to achieve diversification. Since our signals track the Nasdaq 100 we like to use enhanced funds that mirror that index such as profunds or rydex. Profunds ultra otc fund (uopix) and ultra otc short fund (uspix) are easy ways to long and short the nasdaq. They also have a beta of 2. This means that they are 100% margined so if the market goes up 10% they go up 20% or down 20%. Use them with caution in volitile markets. However, they are excellent ways to be more aggressive in ira accounts because of their built in leverage. Smaller accounts can also benefit from a mutual fund strategy because they keep commision costs down while still diversifying. All brokers have different rules regarding the trading of these funds so ask your broker before placing a trade.