Model Explained
Buy Signal Factors
- Uptrend detected
- Bullish pattern detected
- Implied volatility lower than expected
- Minimum hold times expired since last sell signal
Sell Signal Factors
- Downtrend detected
- Prior uptrend weak
- Recession indicators show risk
- Implied volatility higher than expected
- Minimum hold times expired since last buy signal
The Ultimate signal is a mechanical system which aims to determine when a sustained up or down trend has been established. The foundation is a trend following system. However, it will also issue buy and sell signals when conditions are met indicating a market bottom or top.
There will be a BUY signal about 75% of the time. A SELL signal is issued when the model indicates there is higher risk of a down trend. A SELL signal is like buying insurance, it doesn’t always pay off but it keeps you safer.
There are often a lot of false starts to a down trend with a sharp V bottom after a few days that quickly reverses. They are usually driven by automatic program trading. A lot of people get scared and sell low just before the sharp upturn. The model attempts to weed out those traps and not issue a sell signal at every sign of trouble. There will be times the model will be long and there will be a sustained down trend. When that happens the model will not generally sell but will ride it out. I have tested many methods to limit loss such as adding a trailing stop. In the long run, it hurts performance. It creates too many false sell signals to make up for the few times it pays off.