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Trader Fred
TSP Trader System Return:
Returns System Aggressive G Fund F Fund C Fund S Fund I Fund 20% Each
Thru 10-31-2014 % % 1.95% 5.73% 11.06% 5.34% -1.69% 4.48%
 


Developed by Trader Fred
 
TSP Trader System

Trader Fred's TSP Trader System can be accessed on the Premium Services Page

View Sample Trader Fred Commentary

View Sample Trader Fred Supplemental Signals

Free Trader Fred Technical Reports

About the TSP Trader Fred Trader System:

The TSP Trade system has four design goals. The first is to stay out of the stock market and in the safety of the G Fund during periods of stock market gyrations.

The second TSP Trade system design goal is to exit each submodel system trade with at least a one percent profit. There were four system trades in the first half of this year. They averaged 1.39% per trade, which meets the second design goal.

The third TSP Trade system design goal is to be out of the stock market for least 40 percent of the trading days. That meant being in the safety of the G Fund for at least 50 of the 125 trading days experienced so far this year. The TSP Trade system was in the G Fund for 70 days during the first half of this year. This realizes the third TSP Trade system design goal.

The fourth TSP Trade system design goal is to use a –1% to –2% stop loss to exit trades no longer following the relevant submodel pattern. This happened at the end of the last system trade. This caused the –1% stop loss to execute. The system trade exited the market with a profit of +0.71 percent. This nice stock market gift satisfies the final TSP Trade system design goal.


TSP Monthly Trader Performance for 2011

The TSP Monthly Trader system has four design goals:

The first design goal is to stay out of the market and in the safety of the G Fund during periods of stock market gyrations. The TSP Monthly Trader was in the G Fund approximately eighty five percent of the time in 2011. The TSP Monthly Trader gained +1.96% while in the G Fund. As discussed below, the TSP Monthly Trader returned one and three quarters more than the C Fund. Thus, this first design goal was met.

The second design goal for the TSP Monthly Trader is to exit each trade with at least a one percent profit (+1.0%). The three trades made this year lost –0.78%. Therefore, the second design goal was not met.

The third design goal is to be in the stock market less than half the time. The TSP Monthly Trader was in the stock market approximately fifteen percent of the time. Those using the Buy & Hold approach are in the market every day. Their market risk is always 100%. The third TSP Monthly Trader design goal of significantly reducing market risk was met.

The fourth design goal for the TSP Monthly Trader is to use the minus one and half percent stop loss (-1.5%) to exit trades no longer following the system. Only one of the three trades used this lower stop of minus one and half percent. Thus, the three trades made this year lost –0.26% per trade (-0.78% / 3 = -0.26%). Therefore, the fourth design goal was met.

Annual Performance Summary: The TSP Monthly Trader system has no design goal about meeting or beating common stock market averages. The TSP Monthly Trader design goals are centered on staying out of the market most of the time, especially during extreme market gyrations, and making a reasonable return for the risk of actually being in the stock market.

For this year, the C Fund gained approximately one percent (($15.52 minus $15.38) / $15.38 = +0.91%).  The TSP Monthly Trader gained approximately one and one half percent (+1.62%). This year (2011), the TSP Monthly Trader system has returned one and three quarters more than the Buy & Hold approach (abs (1 + (+1.62% - 0.91%) / +0.91%)) ≈ +1.75).

The above is a short-term or annual performance summary. The TSP Monthly Trader system long-term performance summary follows.  

Long Term Performance Summary: The TSP Monthly Trader system has no design goal about meeting or beating common stock market averages over the long term. From Q1, 2007 through Q4, 2011 and using the C Fund, the Buy & Hold approach gained approximately one and one third of a percent per year (+5.54% -36.10% +22.76% +13.25% + 0.91%) / 5 years ≈ +1.30%).  During that same period, the TSP Monthly Trader gained approximately five and one half percent per year (+5.64% -1.91% +10.33% +12.08% + 1.62%) / 5 years ≈ +5.50%). Thus, the TSP Monthly Trader system has returned three and one third more than the Buy & Hold approach (abs (+5.55% - 1.27%) / +1.27%) ≈ +3.35).

Thus, over the long term the TSP Monthly Trader has returned approximately three times more than the Buy & Hold approach with only a 20% market risk (1). Those using the Buy & Hold approach are in the market every day. Their market risk is always 100%.

 (1) [39.20%2007+7.56%2008+6.72%2009+31.58%2010+12.90%2011] / 5 years ≈ 20% of the days in the market for the TSP Monthly Trader. 

Conclusion: The ability to save money during periods of extreme market gyration speaks well for the successful execution of the TSP Monthly Trader’s four design goals since inception. For 2011, the TSP Monthly Trader gained one and three quarters more than the Buy & Hold approach. However, over the long term the TSP Monthly Trader system has returned three times more than the Buy & Hold approach with only one fifth of the market risk. The 2001 through 2010 historical back testing result using the one and half percent stop loss (-1.5%) is available here.

Disclaimer: One should never forget investing in the stock market is gambling in the world’s largest and most popular casino. The casino gaming rules, including how bets are placed are subject to change without advance notice to the players. Additionally, those gaming rules can be modified by both internal market decisions and external global events. As always, past stock and bond market performance do not in any way guarantee future market returns or performance.

 


To sign up to receive email alerts when the TSP Trader System's signals change, go to the email alert page. 
 

 
More on The TSP Trader System:


More on The TSP Trader System, taken from a late December Daily Market Commentary:

... "Trader Fred" will not be giving us the system.  He will be telling us when we have a buy or a sell signal.  It's kind of like taking an indicator like the ARMS index.  We don't need to know exactly how each measurement is determined.  We just need to know what the market tends to do at specific levels of the indicator.  That's what we'll be getting here.  But it is based on more than just one piece of market data.

Trader Fred will run his programs each night using that day's data, and the output will tell him whether the system is on a buy or sell signal.

A quick and simple overview shows us that there are 8 separate short-term trading models, each based on certain market criteria.  If any one of those 8 models is on a buy signal, then the system (labeled the long-term trading model below) is on a buy signal.  If all 8 go to a sell signal, then the system goes into a sell signal. 

In the example below, which is tough to see, The A, D, E, and F sub-models all had a buy signal at one point which put the entire system into buy mode (the black bars).  Those are dates on the left of those black bars.  You can see that there were a couple of points where there is a gap in the black bar and that is because none of the 8 sub-models were giving a buy signal.  That would be a time to sell.  But once one sub-model gives a buy signal, it's back to a buy for the system, and for us.
    


That doesn't tell you too much and I may be oversimplifying the explanation, but that is the gist of what we will be seeing. 

The system has been on a buy signal since early August of this year.  That would have equated to a 10.8% gain if you used a 100% C fund allocation during that time.  (More on allocations later.) The other day Trader Fred had told me that it looked like we would be getting a sell signal by the end of the week, but the last two days' activity set another one of the sub-models (sub-model J) into a buy mode so the system remains on a buy signal.

Oh, how I was hoping it would give that sell signal because you know I don't want to be a buyer with the market up this high.  Perhaps a sell off in the next couple of days will put us both on the same page.

What you do with the buy signal is basically up to you.  More conservative investors may never want to go to a 100% stock allocation, while aggressive investors / traders may want to move all their chips into one stock fund.  Not surprisingly, the back testing has proven that using 100% S fund on a buy signal and 100% G fund on a sell has shown the best results.  That may not always be the case and that may be where we have to use some analytical information.  Trader Fred is working on tweaking the system to generate an optimal allocation.  But to reiterate, your own situation should determine the amount of risk you wish to take.

As an example of the type of returns the system has been seeing (and again this is back testing and back tested results always seem to be a best case scenario since they are designed around past data) the system generated a return 2.5 times that of a buy and hold of the C fund since July 2003.  That is when share data was first introduced.  And, very importantly, you would have only been in the market 68% of the time.  That means about a third of the time you would have been safely in the G fund, as opposed to a 100% C fund buy and hold allocation where your account is at risk 100% of the time.

We will begin monitoring the returns of the system for tracking purposes on the first day of January 2007.  The signal will be determined by the program each evening and Trader Fred will then pass the info along to me.  I will then update the site with that information in the following morning's market comments. 

- One of our readers made an interesting point, asking if there was a "hold" signal rather than a buy or sell signal.  That is a great question.  The over-simplified answer is that the system is either on a buy (in stocks) or a sell (in the G fund).  But the buy signal, once given, really turn into a "hold" signal because you may have missed the optimal buy point.  We started offering the system signals here earlier this month, five months into a buy signal, so the buy signal is not very strong at all at that point, which we have stressed.

I posed the question to Trader Fred and here is his response:

"The Buy signal means to go from the G Fund to some combination of the C, S, I Funds the very first day the Buy signal is listed on the TSP Talk web site. The official trade is entered only on the first day the Buy signal is listed on the web site and not on any subsequent days. After that first day, the trade enters its Hold mode until a Sell signal is given to exit that trade and return to the G Fund. The trade is always exited on the very first day the Sell signal is listed on the TSP Talk web site. Exiting the trade after the specific Sell day has passed nearly always yields completely unpredictable and possibly catastrophic results.  
 
"Since we never really know in advance, the duration of a Buy or Sell signal, for each trade there is officially only one day to Buy into some combination of the C, S, I  Funds and only one day to Sell those C, S, I Funds and return back to the G Fund.  Outside of those trade dates, the results are unpredictable." 

Read about System Stop Loss Analysis | Relative Strength Trends

Trader Fred's TSP Trader System can be accessed on the Premium Services Page
 
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