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My Strategies Page
• What is a Strategy?
 A
Strategy, in the context of
Sector Surfing,
is a set of up to 12 mutual
funds, ETFs, or
stocks along with an
indicator
algorithm
to evaluate the performance of each to determine which
one, and only one, is currently demonstrating leadership
and should be owned. You can browse the performance
characteristics of numerous ready-made
Free Strategies and
Premium Strategies, or you can create your own
Custom Strategy using the funds of your choice — an
important thing if you are limited to using only those
mutual funds offered by a company-sponsored retirement
plan.
Click the picture to the right to view the layout and
functions of the My Strategies page. This is where your
investment Strategies are managed and your Trade Alerts
are viewed. To go to the My Strategies page, click the
My Account tab
on the top menu, and then the
My Strategies tab
on the second level menu. Since the Strategies on on
your page are yours alone to manage and edit, creation
of an account and login is required.
Click Here
to create an account — there is no cost to do so.
 Recommended
Short Video Tour
We highly recommend that you view the short My
Strategies Tour video by clicking the video icon to the
right. It will quickly demonstrate all of the
significant features and functionality of the page and
likely save you a lot of time reading detailed
instructions and eliminate the frustration of guessing
how everything works.
Algorithm Automation Simplicity!
Although
indicator algorithms
can be complex and difficult to understand and
configure, the good
news is that we have totally automated the indicator
algorithm configuration for each Strategy according to
the character of your chosen funds/stocks.
There are significant differences in the behavior of
mutual funds, bonds, and stocks. For example,
commodities, such as oil and gold, will behave
differently from the stocks of companies that
manufacture consumer goods, or from funds holding
T-bills or certificates of deposit (money market funds).
SectorSurfer automatically determines the algorithm and
parameters most appropriate for the character of each
Strategy so you don't have to.
That's why we say "Our computers will do the hard work
while you go have a life!" Just throw a
set of funds at it, and SectorSurfer automatically
figures out how best to treat them.
My Strategy Page Controls, Column-by-Column
Strategy Number and Subscription Status
In the left column of your Strategies list is the
Strategy number and its subscription payment status.
Three examples are shown for Strategy #1. The first
indicates that it is a
FREE
Strategy that will never require
a subscription fee to receive email Trade Alerts and see
the most recent trade. The next two are for a
Premium Strategy that requires a paid subscription
to receive email Trade Alerts and see the most recent
trade.
PAID
indicates the subscription fee
has been paid.
NOT PAID
indicates that either the
subscription fee has not been paid or that the
subscription has lapsed, thus disabling the
ability to see the most recent trade. To fix a
subscription problem, click the
button that appears on the page and follow the
instructions.
Add Strategies to Your List
The My
Strategies page contains your personal list of up to 10
Active Strategies for which Trade Alerts are sent
and may require a subscription fee, and up to 20
Sandbox Strategies
which are for experimental evaluation, but neither send
Trade Alerts nor require a subscription fee. There are
three ways to add a Strategy to your list:
1. Select a ready-made Strategies by
clicking the Strategy
icon and considering the Strategies presented in the
Select-A-Strategy popup window. Click the row of the
Strategy to select it, then click the
button
at the bottom of the page to add it to your Strategies list.
2. Import a
Strategy from a friend by clicking the
Strategy
icon, pasting the Strategy-ID into the text box at the
upper right. Then click the
button above the text box. To send a Strategy-ID to a
friend, click
the Information
icon to find the Strategy-ID, then copy and paste it
into an email.
3. Assemble
your own Custom Strategy
by clicking the
ticker symbol positions in the Strategy List and
selecting one
from the many thousands of
mutual funds,
ETFs, or index stocks on
the list that pops up. Additional details and tips
for building great Custom Strategies are detailed below.
 
View Trade Signal History for a Strategy
You may view the Trade Signal History for
a Strategy by clicking the
History icon. The Trade Signal History, as pictured to
the right, should not be confused with the Actual Trade
History found in the Trade Information section of the
page. The Trade Signal History is what the Strategy
algorithm says one should have done to achieve the
results portrayed on the charts.
The list shows the
entire history of trade signals, days held, performance
for each holding compared to the S&P 500 and the
cumulative value for both the Strategy and S&P 500 had
you invested $10,000 in each at the start of the
available data for the Strategy.
The generic
symbol
$CASH is used when
StormGuard directs you to
move to the safety of a money market fund. Not
everyone has access to the same money market funds, and
they are all pretty much like "peas in a pod", so
whatever your brokerage has available will work just
fine.
At the bottom of the listing you can click the
button to download a CSV (comma separated variables)
spreadsheet of all the important Strategy
statistics and trade signal history. Add "/d"
to the end of your Strategy Name to further add daily
data for the Strategy and the reference fund. (Note:
make sure the "/d" shows up in the name on the chart
because if the name is too long and it is cut off the
extra data will not be generated.)
Correct Interpretation of History Data:
A
common misinterpretation of the Trade Signal History
data is that each line reports
performance associated with the BUY fund. The correct
interpretation is that it reports the status on the date
found in the left hand column. On the day of the Trade
Signal Date, one has only just bought the BUY fund. Thus
the performance data reported relates to the SELL fund. A good reminder
of this is the 4th column title "Days
Held (fund sold)." Thus, when
you click to view the example above-right, the
proper interpretation is: On Jan 31st 2011 SectorSurfer
signaled to
BUY EWY and to sell IIH which had been held for 248
days. During the 248 day period from May 28, 2010 to Jan
31, 2011, the S&P 500 returned 19.5% and the Strategy
returned 23.0%.
View Strategy Performance Charts
You may
view the current performance charts for a Strategy by
clicking its
Chart icon. In a single view, five separate charted
measures of risk and return performance are provided, as
described in the
About SectorSurfer Charts section
below.
Fresh charts are
made within a few seconds whenever you make a change to
a Strategy to enable evaluation of the change's effects.
Fresh charts are also produced: (a) during daily data
update processing, (b) when a Strategy is imported to
your list, and (c) when you change a fund in the
Strategy or change its Minimum Hold Time (see below).
Strategy Information
The Strategy
Information popup window contains these elements:
• Strategy Name editing so you can
rename it to something meaningful to you.
• Strategy Notes editing so you can
better remember which investment account this Strategy
is meant to control.
• Strategy Classification to indicate
the investment style. This is for your reference only,
it does not affect the Strategy.
• Strategy Minimum Hold Time to
control when a Trade Alert can be issued. (See notes
just below.)
• Strategy-ID number for you to copy
and paste into an email so a friend can import an exact
copy of the Strategy.
Note: The Information
icon will be replaced with the
warning icon if SectorSurfer detects a problem with one
of your Strategies (such as one of the funds going
defunct). The warning message will be displayed when the
icon is clicked.
• Minimum Hold Time
There are seven choices for the Strategy Minimum Hold
Time, as listed below. You can select one in the
Strategy Information popup window by clicking the
Information
icon to the right of the Strategy name. This
parameter can be used to make SectorSurfer's
algorithms comply with minimum hold time
requirements, whether imposed by a particular fund, or
by a particular investment plan. For example,
most mutual funds and ETFs have no minimum hold time.
However, Fidelity Sector Funds all have a 30-day minimum
hold time with a 0.75% early trading fee, most Fidelity
International Funds have a 90-day minimum hold time with
a 1.5% early trading fee, and all 529 College Savings
Plans have a one-year government mandated minimum hold
time.
SectorSurfer maintains a file of the minimum hold time
and early trading fee for hundreds of popular funds;
however, there are many thousands of funds available. If
we have the information for your fund, it will be listed
in the right column of the Find-A-Fund popup window on
the My Strategies page, or in the screen tip text that appears when your mouse
pointer is placed over the ticker symbol to display its
name. When
SectorSurfer knows the minimum hold time for a fund, it
is incorporated into the trading algorithm only if the
"Trade Automatic" setting is selected. Currently we have
the minimum hold information for Fidelity, Vanguard, and
American funds. In the future, on request, we will add
such information for other funds of importance to you to
support your custom Strategies.
SectorSurfer generates a new Trade Alert when trend
leadership changes according to the Hold Time Option
selected:
• Trade Automatic
-
Trade alerts issue at month end only, but will wait
additional months if a fund hold time is > 30 days.
• Trade Any Day - Trade
alerts issue immediately, but you'll be warned if a fund
hold time is violated.
• Trade Weekend - Trade
alerts issue on the weekend only, but you'll be warned
if a fund hold time is violated.
• Trade Month End
- Trade alerts issue at month end only,
but you'll be warned if a fund hold time is violated.
• Trade if >30
days - Trade alerts issue if current
fund has been held at least 30 days.
• Trade if > 60
days - Trade alerts issue if current
fund has been held at least 60 days.
• Trade if > 90
days - Trade alerts issue if the fund
has been held at least 90 days.
• Trade if > 1
year
- Trade alerts issue if current fund has
been held at least 1 year.
Note:
Trade Automatic is the default
setting for a good reason. Not only does it watch out
for special hold time rules for funds, but it also
trades month-end, which almost always performs better
than
Trade Any Day
because it can be shown that the trend
signals actually do become more reliable around the end
of the month when many fund managers start making next
month's changes. This is documented in the
Hurst
Exponent Fingerprint section of the Sector Rotation Theory page. If you are anxious to have a faster
responding system, please read about
The Faster Response False Dilemma.
Note:
Changing Minimum Hold Time will
cause the algorithm to re-evaluate and determine what
the best parameters are for the Strategy, and could
result in using a longer or shorter trend measurement
period, and consequently a possible change in the one
designated as the trend leader. Determining the trend
leader depends heavily on the period of time over which
the trend is measured. Imposing a holding period imparts
a delay effect much like changing the trend measuring
time constants, thus it should be expected that changing
the Minimum Hold Time rule will case a change in the
optimum trend measuring time constants.
• Fund or Stock Ticker Symbols
By clicking the position of a ticker symbol,
the Find a Fund,
ETF or Stock popup window will appear
and enable you to search by either ticker symbol or by
words in its name. The popup window also provides a
means to delete the current ticker symbol by clicking
 .
As shown above, when you place the mouse pointer above a
ticker symbol, its name, pertinent hold days, and early
trade fees are shown.
Mutual Funds & ETFs:
There are in excess of 12,000
mutual funds and ETFs available to choose from.
Please contact us
if there is a mutual fund or ETF that is
important to you but is not on the list. We will
do our best to make it available provided it has at
least 3 years of data.
The reason for requiring 3 years of
data is that SectorSurfer's algorithm cannot properly
characterize a fund that has not seen a variety of
market conditions, and you risk the possibility of
unexpected Strategy behavior in the future. If you must
have a fund or ETF with shorter duration history,
you may be in love with it for the wrong reason. The
right reason is having increased probability of higher
returns and decreased probability of loss. A sexy name
and low introductory fee is not a sound reason for a
financial marriage — long-term character matters.
 U.S.
Stocks Available for Strategies:
Our database, from FastTrack, contains well over 3,000 U.S.
Stocks from the three major exchanges (NYSE,
AMEX,
NASDAQ), which include many
foreign stocks listed for trading on the U.S. markets as an
ADR (American
Depositary Receipt). However, we generally do not
make new stocks available until they have about 3
years of data. SectorSurfer's algorithm cannot properly
characterize a stock that has not seen a variety of market
conditions, and you risk the possibility of unexpected
Strategy behavior in the future.
Foreign Stocks Available for Strategies:
Our database also includes most of the
Australian Stock Exchange ASX-100, all of the
Toronto Stock Exchange TSX-60, and most the
London Stock Exchange FTSE-100. The symbols
for these stocks have ".A",
".T",
or ".L"
appended to them for their corresponding exchange to prevent confusion with
possible duplicate ticker symbols on other exchanges. Unfortunately our system is currently
limited to a maximum symbol length of five characters, thus
the stocks with greater than three characters are too long
in our system when the two-character suffix is added, and
therefore have been excluded. When searching for these stock in
our system, try entering just the two-letter suffix to
specifically find these stocks.
Note: Ticker Symbol Changes Causes
Re-Optimization: Each time you change one of the ticker symbols,
SectorSurfer will re-make your Strategy chart so you can
immediately see the effect of your changes.
Note: Changing any
ticker symbol or the Strategy minimum hold time causes SectorSurfer to
re-evaluate and determine what the best parameters are
for the Strategy, and could result in using a longer or
shorter trend measurement period, and consequently a
possible change in the one designated as the trend leader.
Determining the trend leader depends heavily on the
period of time over which the trend is measured.
Performance ranking last week is not the same as
performance ranking last month. Consider that there are
many routes to your favorite restaurant, and right now
there is an optimum set of roads in the route. But that may
change if some roads are closed and new ones are opened, or
if you impose a rule for how frequently you can make a turn.
Likewise in a Strategy, there are often multiple
sequences of ticker symbols that produce fairly similar
results, and
small changes to the Strategy can cause a different
sequence to
become the optimum sequence.
• BUY/SELL Trade
This is where the trade details can be viewed,
including: (1) the trade signal date and
BUY/SELL
ticker symbol information, (2) a red
button to acknowledge completion of the recommended
trade and to inform SectorSurfer that you have completed
the task so that no further reminder emails will be
sent, and (3) a green
button to indicate that you have already acknowledged
the most recent trade. If you find you acknowledged a
trade in error, click the
Strategy Trade History icon where you will find the 
button to undo the trade acknowledgement status in our
system (not the actual trade at your brokerage).
$CASH, $WAIT, -NEW-
When StormGuard indicates it is time to move to/from the
safety of a money market fund, it uses the generic
symbol $CASH
for the Buy/Sell ticker symbol because not everyone has
access to the same money market fund. When you see
$CASH,
substitute your favorite money market fund. When
creating a new Strategy it is important to choose a good
entry point into the Strategy's recommended fund. If
there are only a few days until the next likely Trade
Alert or if the last recommended Buy ticker symbol has a
short-term trend that has gone negative then
SectorSurfer's algorithm will use the
$WAIT
symbol to indicate you should wait a bit for a better
entry point into the Strategy. In both case there will
be important and specific trade advice offered by
clicking the
icon. The -NEW-
ticker symbol will appear as the SELL symbol for new
Strategies that have no prior recorded history of trade
acknowledgements to specify what you actually do own and
should sell.
Warning or Special Trade Advice
If there
is a special situation regarding the recommended trade,
the
Warning icon appears instead of the
icon. When you click the icon, the warning message will
be displayed. The message could be generated for
numerous reasons, including: (1) the current fund you
own may have a stronger trend signal than any of the
funds in the new Strategy you have just selected, (2)
one of the funds in your Strategy is defunct and should
be deleted or replaced, or (3) you have just created a
new Strategy and special advice is offered.
Trade Options Information
If there are no special considerations associated with
the suggested trade, the
Trade Options Information icon appears to the right of
the
button, to let you know that there are multiple options
for how one might respond to the recommended trade. When
the Option Information icon is clicked, the following
text is displayed:
You have four options for acknowledging this trade:
1. Click the Broker link to go to your
brokerage account and make the trade and then return
here and click the Acknowledge Trade button so
SectorSurfer will no longer send you email reminder
Trade Alerts.
2. Delay making the trade until a later
or better time and don't click the Acknowledge Trade
button until then.
3. Reject this Strategy in favor of
another Strategy by clicking the
Strategy icon and selecting a new Strategy from the
list.
4. Exit for the sidelines to sit in
cash (any money market fund) for a while by changing to
the Free Strategy called
Sidelines In Cash. Click the
Strategy icon select the
Sidelines In Cash
Strategy.
View Strategy Trade History
You may view
the history of trades you have made in a Strategy by
clicking the
History icon in the Trade Information column. Unlike the
"Trade Signal History" controlled by the Strategy
algorithm, this is a list of all trades you have
acknowledged, rejected, or that still may be pending. It
is a log of your activity for this particular "bucket of
money," not a list of "trade signals" for the Strategy.
If you acknowledged a trade in error, click the
button on this screen to undo the trade acknowledgement
status in our system (not the actual trade at your
brokerage).
Change Brokerage Link
In the far right
column is the link to your brokerage to make the actual
trade. You can change the brokerage link by clicking the
Brokerage icon. There you can select from a list of
dozens of brokerages, or enter your own brokerage name
and link.
Delete a Strategy from Your List
To delete
a Strategy, click on the
Delete icon on the far right of the Strategy line. You
will be asked to confirm that you really do want to
delete the Strategy before it is removed. The first
Active Strategy has a grey icon indicating you cannot
delete the first Strategy - but you can edit it or
import another Strategy over it.
Strategy Charts
• Charts Demo Video
 We
recommend viewing the short demo video, to the right,
describing our comprehensive Strategy charts. Each
SectorSurfer Strategy chart contains the information you
need to evaluate a Strategy's risk and return
performance. By clicking the
Chart icon, you can instantly compare and contrast the
performance of Strategies you are evaluating. Fresh
charts for each Strategy are generated (a) each night
during our daily processing, (b) when you import a
Strategy to your list, and (c) instantly when you make
any change to the Strategy.
 Seven-In-One
Charts
Each SectorSurfer chart (click image to the right)
contains these 7 features: (1) a
logarithmic price chart showing all of the Strategy's
constituent funds along with the S&P 500 Index plotted
in white and the SectorSurfer's results plotted in
yellow; (2) a bar chart comparing the
annualized return performance of the Strategy and the
S&P 500 Index over 3-Years, 10-Years, and Max-Years;
(3)
the Sharpe Ratio measure of risk; (4)
the 10-year maximum drawdown; (5) the
probability of loss of real money; (6)
the relative trend strength for each fund in the
Strategy; and (7) the StormGuard
Indicator.
• Screen Popup Text
Each major element of the chart has popup explanatory
text when you place the mouse pointer over it, and some
further provide clickable links to portions of this
page.
CLICK HERE
to see an example of the popup text.
• Logarithmic Price Chart
 A logarithmic price chart has the advantage of vertical
interval spacing that provides the
same percentage change for each interval.
On a logarithmic price chart, performance is measured
relative to its price at the start of the chart — hence
everything starts at 0.0% return on the left side and
goes from there.
On the chart to the right,
the first vertical interval above 0.0% is 41.4%. A 41.4%
gain at the first vertical interval grid line means our
total account value at this level is 1.414 times as
large as the starting value. We have the original unit
amount (1.0) plus the return (.414). Thus, if we started
with $1,000, we would now have $1,414.
Likewise, the next
interval up will be another 41.4% return, compounded on
top: $1,000 x 1.414 x 1.414 = $2,000, which is a 100%
return on the original amount. With another 41.4% return
we would have $2,000 x 1.414 = $2,828, which is $1,828
more than what we started with and a total return of
183% — and so on.
One nice feature of this is that a straight line
represents a constant percent return per year. For
example, if you drew a straight line along the crests of
the bumps of the yellow curve, it would have a slope
that takes approximately 11 years to raise 7 intervals
(.64 intervals per year), or roughly .64 x 41.4% =
26.5% per year.
As can be appreciated when viewing this chart, the
relative performance of the Strategy's performance
(plotted in yellow) can be compared to the S&P 500 index
(plotted in white) and each of the constituent funds. By
clicking one of the blue buttons in the lower right, the
logarithmic chart can be viewed in three different time
scales — 3-Years, 10-Years, and Max-Years (where Max is
the full number of years in the fund database for at
least two of the funds). If fewer than 10 years of data
is available, the 10-Year button will disappear.
 •
Annualized Return Bar Chart
Below the logarithmic price chart is the annualized
return bar chart that compares the annualized return
(average yearly return) performance of the Strategy to
the S&P 500 Index over the most recent 3-Years,
10-Years, and Max-Years. The numerical value for
SectorSurfer's performance for each of those periods is
located below its corresponding vertical bar.
 •
Sharpe Ratio Risk Measure
The Sharpe Ratio is commonly used in the
financial industry to measure an investment's added
return over that of a very safe money market fund
relative to the higher investment risk taken. It is
named for William Sharpe, Professor of Finance,
Emeritus, at Stanford University's Graduate School of
Business and the winner of the 1990 Nobel Memorial Prize
in Economic Sciences. The mathematical expression
for the Sharpe Ratio is:
Sharpe Ratio = (Fund Average Return - Money
Market Return) / (Fund Standard Deviation)
The Fund Average Return is calculated by first finding
the ratio of the ending value to the starting value of
the fund, finding its Nth root, and subtracting one —
where N is the number of years between the starting
value and the ending value. The average return for
Fidelity SPRXX over the same period (about 4.5%) is used
for the Money Market Return value.
Fund Average Return = (EndValue/StartValue)^(1/N) - 1
The Fund Standard Deviation is calculated by stepping
through the database day-by-day and calculating
gain/loss from one year earlier less the Average Annual
Return, squaring it and summing it to form a
TotalVariationSquared value. The TotalVariationSquared
is then divided by the total number of days. By taking
the square root of this value we get the Fund Standard
Deviation.
 •
Probability of Loss of Real Money
At SumGrowth Strategies, we believe that the two main
measures of risk used in the financial industry, the
Sharpe Ratio (explained above) and the coefficient of
variation (defined as the standard deviation divided by
its average value)
both miss-characterize risk by ignoring how
humans perceive risk. Both use focus on
a statistical measure
called standard deviation (basically the wiggliness of
the line), which is affected by both upside wiggles and
downside wiggles. Given that investors pretty much like
upside wiggles, it is difficult to make a case for
including them in a measure of risk. What scares
investors is the possibility of losing real money —
money at risk is money that could be lost.
To be meaningful, this measure of risk must include
magnitude of loss and probability that it might occur.
We determined that a magnitude of about 15% loss is
where investors start becoming seriously concerned. As a
simplistic example, if a fund experienced a loss of 7.5%
year-to-year on average once every 4 years, then our
measure of risk should be (7.5%/15%)x(1/4) = 12.5%.
The numbers in the upper right corner show the values
for the Strategy (yellow marker), and for the reference
fund (white marker).
The Chance of a 15% Year-Over-Year Loss is calculated by
first stepping through the database day-by-day and
calculating the return for each from one year earlier.
If the return is positive then the day is skipped. If
the return is negative then it is divided by 15% to
normalize/scale it properly, and then it is summed with
the losses from other days to form a TotalLoss value.
When all of the days have been checked, the TotalLoss is
divided by the number of days that were checked to
result in the value for
Chance of 15% Loss in a Year.
The Average Annual Return is calculated by first finding
the ratio of the ending value to the starting value of
the fund, finding its Nth root, and subtracting one -
where N is the number of years between the starting
value and the ending value.
Thus the
Average Annual
Return = (EndValue/StartValue)^(1/N) - 1 Note that the calculation is
performed over the period of time for which data exists
for the Strategy ticker symbols and may result in
different values for the reference fund in different
Strategies. The date range is specified in the title of
the risk section on the chart.
 •
Relative Trend Strength
The Trend Strength is the final singular figure of merit
that
SectorSurfer generates and uses to determine which one,
and only one, of the funds has taken leadership and
should be owned. The green-bar trend chart is calibrated
in percent return per month and is an indicator of
possible returns next month — to the degree that the
current trend continues. Although "trend" means that
something in the recent past tells us something about
the near future, the future is also buffeted by the
random events of the world.
Trade Alert vs. Top Trend: It is
important to understand that just because a fund/stock
makes it to the top of the Trend Chart does not mean
that you should instantly run out and buy it. Each
Strategy also has a "Minimum Hold Time" rule, such as
"Trade Month-End," which determines when the Strategy
will actually employ the Trend information and possibly
generate an email Trade Alert. In the case of Trade
Month-End, only after the market close on the last
trading day of each month will the algorithm check the
Trend for each of the funds/stocks to determine if there
is a new leader, and if so, update the Sell/Buy
information for the Strategy and send an email Trade
Alert. It's not uncommon for one fund to be in the lead
mid-month, but another to take the lead near the end of
the month before the actual decision is made. Only with
the "Trade Any Day" setting will a new email Trade Alert
be sent on the exact day there is a new trend leader.
Reasons for selecting more restrictive settings include
early trade fees for some mutual funds, and that
generally, month-end trading actually does perform better
as
described here. You can edit the Strategy's
Minimum Hold Time parameter by clicking the
Information icon to the right of the Strategy name on
the My Strategies page.
Inconsistent Trend Position:
It's not uncommon to see a pair of funds in one Strategy
have trend ranks become reversed when they are both also
in a second Strategy. The reason this is possible (and
rational) is that there is no perfect fixed definition
for "Trend" that is optimum for everything. One fund may
have a better one-week trend, but the other may have a
better one-month trend. Thus, positions can swap
depending on exactly how the trends are measured. Each
Strategy has a custom set of trend algorithm parameters
that are determined specifically for the set of funds in
the Strategy. If one or more of the funds change, it is
likely there will be at least a small variation in what
constitutes the optimum measure of trend for the
Strategy.
Strategy Editing: Further to the
point above, if you change something in a Strategy and
then reverse the change, there is no guarantee that the
original set of trend parameters will be used again.
Parameters are determined in full view of all past
market data. Thus, parameters set with data that is
current, versus data from one year ago, will likely be
a little different. A difference in how trend
is measure can result in a slightly different path of
fund ownership. Similarly, a change in the Minimum Hold
Time will also generally change the optimum parameters
for measuring the trend. There is more than one route to
your favorite restaurant, but the optimum route will depend on how traffic patterns change over
time, on roads that are added or deleted, and on whether traffic lights
get installed.
Unsubscribed Premium Strategy:
When you view an unsubscribed
Premium Strategy, such as this one
(click here), you will note the yellow text on
the relative strength bar chart that says "Unsubscribed
Strategy — 90-day-old trend data." If you are using a
Free Strategy, or you have a
paid subscription, then this message will not appear
and the green bar trends will be current. You may freely
evaluate any unsubscribed Premium Strategy and build and
evaluate your own Custom Strategies without paying a
subscription fee, but the green trend bar chart and the
Buy/Sell information will not be current.
• StormGuard
TM
Indicator
There
 are
seven different
StormGuard
Indicators shown in the figure to the right that are
used on SectorSurfer charts to show you the general
state of the market.
 When
there is a market storm, SectorSurfer's
StormGuard
algorithm will override the normal selection of the best
fund in the Strategy to instead provide a trade signal
to move your funds to a safe money market fund. This is
called
asset class
rotation. The StormGuard Indicator is located on the
right side of the title bar of the chart, as shown in
the figure to the right. It includes a numerical value
which appears to the left of the icon. When the
StormGuard Indicator value goes negative the Strategy
will produce a Trade Alert (according to the rules
below) to indicate that you should move to the safety of
a money market fund. StormGuard uses the generic
symbol
$CASH
in the Buy/Sell fields to mean "pick a money market fund
available to you" because not everyone has access to a
common money market fund.
 The
character of the StormGuard Indicator is shown in the
chart to the right. Its value will typically range from
about -4% to +4%. The value is calculated daily using a
proprietary algorithm that may be reasonably described
as a differential multi-order exponential moving average
on a basket of broad market indicators. It is designed
to perform a balanced optimization to simultaneously
reduce whip-saw losses from knee-jerk reactions to
market dips by not reacting too quickly, and minimize
the crippling losses from long duration market storms by
not reacting too slowly.
For practical examples of how StormGuard reacts to real
world events, please check out these two articles:
•
Japan: A Short Market Slap, or Economic Malaise?
•
Should You be Panic Selling on Bad News? No!
Please note that the StormGuard Indicator may be
slightly different from one Strategy to the next as can
be seen when viewing a few of the charts on the
Example Strategies page. This is because each
Strategy is separately evaluated to determine the amount
of storm protection required according the character of
its funds. For example, a Strategy composed of broadly
diversified funds will do best if it exits to $CASH as
soon as broad market averages start a protracted
decline, whereas other Strategies composed of sector
funds are likely to have one or more funds doing a bit
better than the broad market averages as the market
decline commences, and thus should be allowed a little
more running room before exiting.
StormGuard Triggering Rules
originally used the same trading rules that govern the
sector rotation algorithm. For example, if it traded
month-end only, then StormGuard would also make its
decision at the same time. In October 2011 the
StormGuard trading rules were changed to improve
responsiveness as follows:
(1) StormGuard may trigger a move to or
from $CASH any time, regardless of the Strategy's
Minimum Hold Time setting.
(2) StormGuard will delay signaling a
move $CASH if the 2-week trend for your currently held
fund is still positive.
(3) StormGuard will delay signaling an
exit from $CASH if the best fund's 2-week trend is still
negative.
(4) If the currently held fund has its
own hold minimum hold time and early trading fee
requirements, StormGuard
will only sell the
fund (to move to $CASH) if the 2-week trend is
negative and will likely cost more than paying
the fund's early
trade fee.
The "Faster Response" False Dilemma
is a common investment strategy fallacy leading to hair-trigger "ants
in the pants" when the markets look scary, with an
ever
stronger desire for shorter time constants to tighten up
the response. The reason this is a false dilemma is
because shorter time constants do not lead to better
returns. There actually is an optimum time constant, as
described earlier, that balances whipsaw losses from
when one reacts too quickly, against major decline losses from
when one reacts too slowly. Please consider this
carefully as you review
the meaning of the white chart (that emerges) in the
Trade
Signal Stationarity topic on the Sector Rotation Theory
page. The
reason why month-end trading generally performs better is
documented in the
Hurst
Exponent Fingerprint section of the Sector Rotation Theory page. Additionally,
if you have not yet done so, please also read this
pertinent
article: Should
You be Panic Selling on Bad News? No!
Disabling StormGuard can be done
to enable "inverse funds" by adding "/i"
to the end of the Strategy name in its text box on the
My Strategies page. (Use just a single space following
the name.) Inverse funds work exactly the opposite of
normal funds by producing positive returns when the
market is down, and vice versa. In order to benefit from
inverse funds during periods of market decline one must
disable StormGuard so it does not override the sector
rotation algorithm and allows inverse funds to shine
through. Please note that market declines are typified
by about twice the normal volatility and a commensurate
reduction in the quality of the trend signal buried in
the market data. Consequently, imagined improvements
often fail to be fully met. You can search for inverse
funds in the "Find-a-Fund" popup screen by entering
keywords such as "inverse," "short," and "ultra-short".
Examples of inverse enabled Strategies can be found on
the Hall of Fame page.
Special Symbols:
SH- and
PSQ-
were created to provide extended data history for
SH (ProShares Inverse S&P500) and
PSQ
(ProShares Inverse Nasdaq QQQ), where the special
symbols have an added dash character. Here is why: Both
the SH and PSQ ETFs have data that only goes back
through 2006, but in order to improve and optimally
backtest Strategies that use SH or PSQ with the "/i"
option, it is better to have modeling data that
additionally includes data for these indexes during the 2000 to 2002 market decline. So, SH- and PSQ- were
synthetically created to do just that. By knowing and
including their character during that market decline,
they help SectorSurfer do a better job optimizing
Strategy behavior for the future. Note that if your
Strategy funds or stocks do not go back to the year
2000, these extended data symbols should not be used.
• Score, Safety, Alpha and Beta
 Score:
Each chart contains a Score value intended to represent
overall performance in a single number. The formula
includes the average return for all years, the average
return for the most recent three years, and the Risk Of
Loss value for the Strategy. Both long and short term
performance are important, and excess risk reduces
the Score. The exact equation is shown below.
Higher Scores are better.
Score
= (AllYearReturn + 3YearRetrn / 2) / (40% + RiskOfLoss)
Strategies constructed from general purpose diversified
funds typically produce Scores in the 45 to 55 range,
while a good selection of sector funds may produce a
Score in the 80 to 100+ range. If a Strategy has only a
short history (of about 5 years or less), be cautious of
reading too much into the comparative value of the
Score.
Safety: The Safety value is
designed to aid evaluation of Strategy suitability for
conservative retirement portfolios. It was scaled
to produce a reference value of approximately 100 for
the Fidelity Income-Bond Strategy. The Safety value
rewards higher returns, but is reduced by twice the average
negative
deviation from its average return in order to favor a
nice straight line of uniform return over the years. The
Safety value is additionally radically reduced by the
4th power of the MaxDrawDown as it increases through
15%, and the 4th power of the Probability of Loss as it
increases through 2%. The calculations are made from
data available in the downloadable CSV spreadsheet on
the Trade Signal History popup page. Examples of excellent Safety
Strategies with smooth and uniform returns can be found
on the
Hall of Fame page.
Safety = 25*(AvgReturn -
2*AvgNegReturnDeviation) / (1 +
(MaxDrawDown/15%)^4 + (ProbOfLoss/2%)^4)
Alpha:
Alpha is a risk-adjusted measure of the so-called
active return on an investment and is expressed as an
annualized return percentage that reflects the excess
performance over the index that would be predicted by
Beta alone. It is commonly used to assess
the performance of active fund managers. It is
because SectorSurfer both reduces volatility during
market crashes and has higher than usual returns that
SectorSurfer has quite good alpha measurements.
Beta: An asset has a Beta of
zero if its returns change independently of changes in
the market's returns. A positive beta means that the
asset's returns generally follow the market's returns,
in the sense that they both tend to be above their
respective averages together, or both tend to be below
their respective averages together.
Beta is usually measured with respect to an index,
such as the S&P 500. A beta of 1.5 would mean that the
asset would have correlated price variations 1.5 times
greater than the S&P 500.
Alpha and Beta are respectively the vertical intercept
and slope of a 'least squares error' line passing
through a plotted set of points where the x coordinate
is the excess return of the index over an index fund
(usually S&P500) and the y coordinate is the excess
return of the fund over that index fund. They are
calculated as follows:
Beta = (n*Sxy -
Sx*Sy)/(n*Sxx - Sx*Sx)
Alpha = (Sy - Beta*Sx)/n
where S represents the sum of all x, y, x*x, or x*y
data over n samples.
• Maximum Drawdown
 Maximum
drawdown is a measure used to evaluate risk of an
investment or an investment strategy. SectorSurfer
calculates it in two ways: (1) as the absolute maximum decline in value from a
prior high that occurred anytime during the prior 10
years, and (2) as the maximum "realized" decline in value from a
prior high measured only on trading dates when gains or
losses of a trade are actually realized. If the
history of the Strategy is less than 10 years, the
evaluation period is reduced for both the Strategy and
the reference according to the
history available. There is no consideration given for
the duration of a decline or the duration of the prior
high, only for the size of decline from peak-to-trough
during the period. The absolute maximum drawdown is
shown numerically and graphically in bar length. The
realized maximim drawdown will always be less and is
marked proportionately on the bar graph. Both values are
available in the
Strategy History CSV download file.
• Born On Date
 On
the left side of the main chart there is a date
indicating when the Strategy was born. It is set to today's date whenever you edit a Strategy and change
either the Min Hold Time setting or any of the ticker
symbols, both of which trigger SectorSurfer to
re-optimize the Strategy parameters for the current set
of conditions you've set. SectorSurfer charts show a
combination of back-tested performance and real time
performance where the back-tested performance is shown
to the left of the Born On Date and the real time
performance is shown to the right of the Born On Date.
Certainly, Strategies with older Born On Dates have more
credibility than do freshly optimized Strategies.
However, the trend character of Strategies does exhibit
statistical stationarity and is why back-testing to
determine the character of a Strategy is valid. See
Trend Signal Stationarity on the Sector Rotation Theory
Page for additional technical information.
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